Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy

Dimitri Papadimitriou, Greg Hannsgen, Michalis Nikiforos and Gennaro Zezza

Economics Strategic Analysis Archive from Levy Economics Institute

Abstract: In this latest Strategic Analysis, the Institute's Macro Modeling Team examines the current, anemic recovery of the US economy. The authors identify three structural obstacles--the weak performance of net exports, a prevailing fiscal conservatism, and high income inequality--that, in combination with continued household sector deleveraging, explain the recovery's slow pace. Their baseline macro scenario shows that the Congressional Budget Office's latest GDP growth projections require a rise in private sector spending in excess of income--the same unsustainable path that preceded both the 2001 recession and the Great Recession of 2007-9. To better understand the risks to the US economy, the authors also examine three alternative scenarios for the period 2015-18: a 1 percent reduction in the real GDP growth rate of US trading partners, a 25 percent appreciation of the dollar over the next four years, and the combined impact of both changes. All three scenarios show that further dollar appreciation and/or a growth slowdown in the trading partner economies will lead to an increase in the foreign deficit and a decrease in the projected growth rate, while heightening the need for private (and government) borrowing and adding to the economy’s fragility.

Date: 2015-05
New Economics Papers: this item is included in nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.levyinstitute.org/pubs/sa_5_15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:levysa:sa_may_15

Access Statistics for this paper

More papers in Economics Strategic Analysis Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).