Well, here’s a fun new example of American exceptionalism.
The chart below shows the International Monetary Fund’s forecast of how advanced economies’ debt-to-GDP ratios will change between now and 2023.
Thanks to Donald Trump’s tax reform and two-year budget agreement, the US is on track to run budget deficits of more than $1 trillion over the next three years, according to the IMF’s calculations. That’s sure not what other major economies have in the hopper.
The IMF doesn’t feel good about this American debt binge. High debt ratios could trigger spikes in interest rates if investors suddenly begin worrying about the country’s ability to pay, according to the IMF’s latest Fiscal Monitor (p.3-5). It also notes that heavy borrowing in good times makes it hard for governments to take on debt—either through tax cuts or fiscal spending, or both—to combat recessions. For those reasons, it’s reasonable to worry about America’s fiscal policies.
But the bigger problem here is not that the US government is going to keep piling on debt. Rather, it’s that none of the other advanced economies are going to.
Germany, for instance, does not need to keep running its budget surplus. A fiscal stimulus would help spur demand for both domestic goods and imports, bringing its hulking trade surplus into less destructive proportions for the global economy as a whole. Same goes for South Korea.
At the other end of the spectrum are Greece, Italy, and Portugal (and, to a lesser extent, France and Spain). Based on IMF projections, they’re on track to do a bang-up job shrinking government debt between now and 2023. But given that rates of youth unemployment in those countries are still alarmingly high, boosting employment would seem to be more urgent concern than fiscal discipline, as the Brookings Institution’s Adam Triggs recently pointed out.
That brings us back to Germany. The country’s obsessively tight fiscal policy has long hurt its euro zone neighbors. Looser German public spending would stimulate demand in the country, benefitting its long-suffering euro zone trading partners. To be fair, recent wage hikes in Germany are a hopeful sign on that front. But though Germany’s new coalition government is planning on loosening its purse strings a little, it’s still on track to run a surplus this year, according to estimates by the country’s leading economic research groups.