The Coming Economic Consequences of the $ 1.9 trillion US stimulus package

U.S. stimulus package boosts U.S. economy

U.S. stimulus package strengthens growth in the rest of the world

Stimulus program increases U.S. current account deficit

Economic stimulus packages drive up public debt

Is there a threat of rising interest rates?

  1. When investors receive higher interest rates in the U.S., they withdraw their capital from countries with lower interest rates. For these countries to prevent capital flight, they too must offer higher interest rates. A rise in interest rates in the U.S. leads to a rise in interest rates worldwide.
  2. If companies plan credit-financed investments and interest rates rise, some of these investment projects are no longer worthwhile. High-interest rates reduce investment. This reduces demand for capital goods. For companies that produce these goods, this means a decline in output and employment. Economic growth slows down.
  3. Rising interest rates increase interest payments for indebted private households, companies, and governments. If these payments can no longer be made, insolvency threatens. Insolvent companies have to cease operations and lay off employees. For the banks that granted these loans, this results in asset losses putting the banks in financial difficulty.

What are central banks doing?

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Our mission on this blog is to shed light on Europe’s role in the world economy. https://globaleurope.eu/

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Global & European Dynamics

Global & European Dynamics

Our mission on this blog is to shed light on Europe’s role in the world economy. https://globaleurope.eu/

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