The economy of the United States has been pumped with trillions in stimulus spending, and some analysts are pointing out that this can’t go on forever. Coupled with a potential government shutdown in the coming days, the situation is nearing a precipice. Some economists are drawing parallels to China circa 2008. Are we in the same situation?
China’s Economic Tale of Caution
Around 2008, China was initially lauded for “saving the world” with its robust post-2008 growth, when China faced economic turmoil due to massive stimulus campaigns. Now, the US finds itself on a similar path, raising very real concerns about the sustainability of its economic momentum.
Federal Budget, Federal Spending, and Debt Dynamics
In 2021, federal spending in the US reached a historic $8 trillion. A substantial $6 trillion was allocated to the military, while $2 trillion went to entitlement programs, government subsidies, and financial aid aimed at maintaining competitiveness against China. While this spending injected life into the economy, many see it as only a temporary boost that could lose its luster, perhaps in the relatively near future.
The US debt has skyrocketed to an all-time high of $33 trillion, with an additional $10 trillion added in just three years. This accumulation of debt poses a significant risk, and the question arises: Can the US sustain such fiscal policies without enduring the economic headwinds faced by nations with regrettable experiences of massive stimulus campaigns?
US China Growth Trajectories
The US could be on the verge of settling into a long and slow economic grind. Drawing parallels with China’s growth trajectory, if/when the stimulus effects and other temporary boosts wear off, the American economy may face similar challenges.
Government Shutdown Implications
Adding another layer of complexity to the economic landscape is the looming threat of a government shutdown in September, 2023. In the event of political gridlock leading to a government shutdown, critical government functions could be disrupted, causing economic uncertainties. This wouldn’t be the first US federal budget government shutdown, though coupled with a waning economic atmosphere, it could be historic.
The decisions made in the coming days and months may shape the trajectory of the US economy for years to come. And, because the US economy has so many international ramifications, the eyes of the world are on the US. Will it go the way of China or will it forge a new path?