How Biden’s Trillions will Help the Global Economy: From a Short-term Gain to a Severe impact on the Entire Global Market

The economic support plan presented by US President Joe Biden will help revive the country’s economy, it will also have positive effects on the global economy, but this short-term benefit may later cause damage at the local and global levels.

Writer Dmitry Migonov, in a report published by the Russian newspaper Izvestia, says that the US government is preparing a new economic support plan at a record cost, and although its details have not been fully disclosed, the talk revolves around allocating 3 trillion dollars for multiple goals.

It is certain that pumping this amount of cash into the economy is a step that everyone will feel its impact, as in the short term it will be beneficial to the economy of the United States and the rest of the countries, including Russia, which may benefit from high oil prices, but in the long term, This generous distribution of money could have dire consequences, according to a study by the Russian credit-rating agency “Expert”.

The author notes that between 2020 and 2021 the US authorities pumped unprecedented sums of money into the local economy through budget and tax policies, and huge sums were previously allocated to combat previous crises, but most of the pumping operations were carried out through lower interest rates and various other federal programs, called Combined “quantitative easing plan.”

In 2020, Congress approved 6 programs to combat the financial crisis, including the small ones aimed at expanding the scope of Corona virus tests, supporting returnees from abroad, and the state guarantees the expenses of “sick” holidays, and other programs such as the Curse Act to combat Corona and support relief efforts and strengthening economic security, in addition to unconventional laws the government introduced Over its enactment, such as distributing money in cash and directly to citizens, the total volume of these programs amounts to $4 trillion, 3 trillion of them distributed with the beginning of the new year.

In mid-March, Congress approved a $ 1.9 trillion plan that includes generous grants and compensation payments to cover various expenses and losses resulting from the crisis, meaning that the total value of additional spending during the current crisis may reach or exceed $ 8 trillion.

Future effects

What this means for the American and international economies? especially since the injection of these huge amounts of cash cannot pass without effects, and these measures will naturally lead to reviving the economy in the midst of one of the worst crises in history, but what is certain is that these amounts will not be sufficient to cover the decline GDP that occurred during the crisis.

This policy may increase the risks of inflation that may be transmitted from the United States to abroad, given the nature of the global economic structure, at the same time experts believe that the situation is not very dangerous, Since the factors causing inflation have receded thanks to the new aid package provided by the US government recently, and the delay in raising the minimum wage to $ 15 an hour, and many of the aid provided to Americans will not lead to an increase in consumer spending, but rather will be to pay off debts.

In addition, the inflation rate in the United States will not increase significantly, because among the most important indicators of high consumption prices, only food and energy will witness an increase, while rental prices are on the decline due to the popularity of the idea of ​​working remotely, and the Corona virus has led to other adverse and non-negative consequences. 

These are expected, including the low cost of medical care due to the quarantine procedures and the tendency of most Americans to postpone their visits to the doctors.

The writer warns that the effects of food price inflation may be significant, as their levels are now almost the highest in 15 years.

Increased spending … Debts

The budget deficit means the accumulation of public debt, and The US government debt currently stands at 811% of the annual budget revenues, one of the highest levels in history, as all the countries that declared bankruptcy and were unable to pay their debts during the past fifty years had their debt levels less than this percentage.

Of course, the United States remains an exception thanks to its huge and highly liquid market, and as the first reserve currency holder in the world, but even with all these advantages, the accumulation of debt in this way remains dangerous in the long run.

Public debt service expenses from the US budget are still close at a level of 10 to 15%, while the level generally accepted by economists is 10%.

Biden’s economic plan will enable a significant increase in spending on clean energy, in exchange for restrictions on oil producers, and this “carrot and stick policy” proposes allocating $ 400 billion to develop renewable and clean energy sources. 

At the same time, the US administration will seek to put more obstacles in front of workers in the oil sector, by prohibiting production on federal lands, for example, which will increase the cost of American oil, and the matter may reach degrees with which production becomes unprofitable.

Experts of the Russian Credit Rating Agency expect oil prices to rise in the future.

According to Marcel Salikhov, head of the Energy and Finance Institute in Russia, the restrictions that will be imposed on oil production in the United States can in return be reached with an agreement with Iran that allows it to return to the international oil market, in order to maintain price stability.

But negotiations with Iran will certainly be complicated, so we should not expect it to return to oil exports in the near future, factors that Moscow will benefit from for some time.