All countries affected by COVID-19 will see an increase in health spending and other items linked to the economic crisis for this year.
No one is escaping and, of course, the United States will also be under severe strain, which will affect the public deficit. Moreover, as we reviewed when he ran for election, Donald Trump’s fiscal policy has led to a greater budgetary imbalance inducing a higher public deficit which closed last year at 5.8% of GDP and a public debt equivalent to 109% of its GDP.
A 15.4% public deficit is expected this year, the highest figure in developed countries and their largest deficit since the Second World War, which will push public debt/GDP up to 131.1% of GDP.
This spectacular deficit is justified because, in the United States, in addition to the health measures approved in early March, the Coronavirus Economic Assistance, Relief and Security Act (CARES) includes a record $2 trillion, or nearly 10% of GDP, in fiscal, spending and liquidity support measures, including assistance to households in the event of pandemic unemployment, deferral of payroll taxes and protection of paychecks for small and medium-sized enterprises.
However, there is not the slightest doubt that it will be able to be financed to meet budgetary needs.
This is due to the exorbitant privilege – an expression coined by French finance minister Valéry Giscard d’Estaing in the 1960s – which reflects the hegemony of the US dollar. We can see this clearly with the following data: according to the International Monetary Fund (IMF), the dollar is the most popular currency because it represents more than 60% of all the reserves recognized by the central banks, around 90% of the foreign currency trade involves the US dollar and around 40% of the world’s debt is issued in dollars.