It is not the first major economic crisis that Joe Biden has faced from the White House. As a member of the cabinet of former President Barack Obama as vice president, he also had to face the financial crisis of 2008, which was then the worst since the crash of 1929. And, according to what much of the American press has to say , seems to have learned from then that you have to act big, that it is better to pass than not to arrive. Last week it announced a stimulus program worth 1.9 trillion dollars that will include a large package to accelerate vaccination against covid and tests, as well as direct injections of resources for citizens, companies and for state governments and municipal. It is a much more powerful plan (up to 50% more) than the one launched by the Obama Administration in 2009. And, in addition, it is much more focused on solving real and more concrete problems: the health crisis and the situation of the most vulnerable.
This great program also has the support and inspiration of one of the star people of its team, Janet Yellen, new Secretary of the Treasury, former president of the North American Federal Reserve, which is also committed to “acting big” and to focus on employment – its field of academic specialization – the economic recovery after the covid. “Right now, with interest rates at historic lows, it is the smartest thing to do,” Yellen assured the Senate yesterday, according to Edoardo Fusco, an analyst at eToro. “The benefits will far outweigh the costs, especially if we are concerned about helping citizens”he added. Wall Street celebrated these words he spoke on Tuesday. Although a few days ago, American stocks have suffered from the fact that among Biden’s plans there are also tax increases on the highest incomes in order to redistribute wealth.
All of this has led to numerous analysis firms having revised upward growth expectations in the United States for this year.. Thus, from Goldman Sachs they estimate that the US GDP will grow 6.6% in 2021, above the 6.4% initially expected. And, in addition, unemployment, instead of closing the year at 4.8%, will do so at 4.5%. This improvement is due to the expectation that Biden, supported by the Democratic majority in Congress, will boost fiscal support for the economy, education, public health, economic aid to the unemployed … to counteract the damage caused by the pandemic. Although Goldman Sachs does not foresee that Biden will be able to roll out all the aid and all the program that he plans, he has revised from the 750,000 million dollars in stimuli that he initially expected to be launched under his mandate to combat the crisis to 1.1 trillions.
Pimco, the largest active fixed income manager in the world, more optimistic, considers that The new president’s plans may lead to real GDP growth in the United States exceeding 7% this year. And it is that one of the keys that the experts insist on is that Biden will have a Senate and a House of Representatives with a Democratic majority. And it should not be overlooked that the Senate budget committee will be chaired by Bernie sanders, from the most left wing of the Democratic Party, with fervent wishes to be ambitious in social programs and in support of economic recovery after covid-19, and who can stamp the stamp of their perseverance in the fight against poverty and inequality dragged by the United States. For example, your campaign for raise the minimum wage from $ 7.25 an hour to $ 15 It has already taken shape in the plan that Biden outlined last week.
In addition, from AXA Investment Managers, Gilles Moëc affirms that the latest weak data from the United States, in particular those of employment and retail sales for the month of December, may become another argument that favors that Biden can carry out his plans with some support bipartisan: the idea that the plan you want to implement is not ideological, but rather necessary, can gain strength.
Short-term shock plan; long-term economic reconstruction
What can we expect from a unified Democratic Washington, even if it is by a narrow margin, they ask from Pimco. In his opinion, there will be more spending for covid-19 relief measures in the short term, with a long-term focus on “economic reconstruction”, a central message of Biden’s campaign, which could include an infrastructure bill.
Regarding the infrastructure plan, from Pimco they point out that it has the potential to have more lasting economic benefits than the short-term shock program in improving growth and productivity. According to his calculations, it could be used between 1 and 2 trillion dollars, that is, between 4.5% and 9% of the US GDP, probably spread over several years.
Pimco experts also note that the size and speed with which the anti-crisis stimulus plan is put in place will depend on how Democrats decide to pass the bill, whether through “regular order” in the Senate. , which requires 60 votes – more than they have in the House -, or through a process called “reconciliation”, which has numerous conditions, but only requires 50 votes. For Olivia Álvarez, the figure of Yellen can also play a fundamental role in gaining the support and confidence of Republicans, given her reputed experience, not only at the head of the Federal Reserve.
If anything, Pimco notes, “additional support to households and small businesses hardest hit by the pandemic would almost immediately revitalize economic activity, while additional support to state and local governments could help avoid long-term drag of the state budget cuts that occurred after the financial crisis.
But on the other hand, as Brendan Mulhern, an economist and strategist at BNY Mellon, warns, the greater freedom that Biden will have to carry out his plans will also imply an increase in the public deficit in the United States during the next cycle, which in turn will imply a larger current account deficit. But this situation does not have to be negative. In Mulhern’s view, this, together with flexible global liquidity conditions and the recovery of the global economy, should help make global credit conditions more flexible. For this reason, he says, “it is likely that the situation in the sectors and economies that faced more difficult credit conditions will begin to improve.” The economic boost that the United States will enjoy will be projected throughout the rest of the world.
Nobel laureate Paul Krugman, in an article in The New York Times, warned Biden that he cannot make Barack Obama’s mistakes, such as paying excessive attention to warnings about rising deficits or inflation that often come with fiscal expansion. In addition, he encouraged him to have confidence in the role that the government can play in driving the economy. And he warned you about the dangers of targeting yourself to win the support of Republicans, because it can undermine an ambition that is now badly needed.
Regarding the markets, for investors in fixed income, the improvement in nominal growth will be reflected in the rising bond yields. And this, in turn, recalls the BNY expert Mellon, is positive for banks.
Furthermore, and this is perhaps worse news for Europe, the dollar may continue to weaken, at least in the short term, which implies a strengthening for the euro, which reduces the competitiveness of the most open and export-dependent economies, especially Germany.
Although the great front on which economics and geopolitics shake hands will be the relationship with China. And on this Janet Yellen also had words on Tuesday: she stated, as Bankinter analysts collect, to be ready to face the Asian giant’s bad business practices, while ensuring that the intentional manipulation of currencies is not acceptable to achieve business advantages.