- The US economy could face a "long, slow grind" as huge debts take their toll, Ruchir Sharma wrote.
- There has been $8 trillion in new federal spending since 2021, he said in the Financial Times.
The trillions in stimulus spending that drove America's "mini growth miracle" may turn out to be a burden on the US economy eventually, Ruchir Sharma wrote in the Financial Times.
The Rockefeller International chair noted the economy's surprising resilience in the face of aggressive rate hikes from the Federal Reserve, but warned the explosion in federal spending — and debt — under the Biden administration will eventually take its toll.
"Many nations have come to regret massive stimulus campaigns, as the resulting debts weighed on growth. Big spender China was credited with 'saving the world' after 2008, but it has seen growth slow since then," Sharma said. "Post-miracle, the US will face similar headwinds. When the stimulus and other temporary boosts wear off, the American economy could settle into a long, slow grind."
So far, federal spending and consumer strength have led a remarkable surge in US growth this year, with the economy estimated to have expanded at over 3% just this quarter, he noted. And after consumers' excess savings peaked at $2.1 trillion in 2020, one-third still remains.
Meanwhile, there has been $8 trillion in new federal spending since 2021, with $6 trillion going to the US military, entitlement programs, and subsidies to US companies to help them compete against China, he added.
"Put these factors together and they go a long way to explaining the unusually light impact of Federal Reserve tightening so far," Sharma wrote.
But big stimulus spending is already resulting in a big burden for the US government as deficits balloon and put upward pressure on bond yields.
US debt hit an all-time high of $33 trillion last week, while the debt-to-GDP ratio is projected to reach a new record later this decade.
In China, authorities remain wary of ramping up economic aid via more debt even amid a crumbling property market and lackluster consumer activity, as burdens from 2008 stimulus continue to weigh.