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What are the impacts of stimulus spending on the U.S. economy?

Updated: Jun. 8, 2021 at 8:07 PM CDT
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SIOUX FALLS, S.D. (Dakota News Now) At the height of the pandemic, federal stimulus funds prompted a wave of relief.

As South Dakota and the nation envision a post-pandemic world, some are asking about the long-term effects of that stimulus money on our economy.

Don Haggar with the South Dakota chapter of Americans for Prosperity is concerned about the rising national debt.

“At a government level when you spend more than you take in, you have deficit spending $1.1 trillion that’s been happening in this past year-and-a-half. Just like if you and I run up credit cards, we have to pay that money back, with interest,” said Haggar.

Creighton University economics professor Ernie Goss explains how the country financed the stimulus spending.

“The federal government is issuing bonds. That’s, of course, to support the spending,” said Goss.

The economy is a delicate weaving of relationships. One of the largest countries buying U.S. bonds is also one of the largest purchasers of U.S. goods and services.

“China is just one among many. China is lending us money by buying bonds, about $1.1 trillion. And that’s of course a significant portion of our debt,” said Goss. “I would argue we’re fortunate that they continue to lend to us now. The question is: who’s got the leverage here, China or the U.S.? You want to be the lender or the borrower? I don’t know about that.”

Haggar believes the debt can only be managed by more borrowing, higher taxes, or inflation.

“We’re already seeing significant increases in lumber. We’re seeing increases in gas prices, and it’s gonna find its way to the grocery store as well. And that’s a hidden tax; inflation is a hidden tax,” said Haggar.

When the pandemic affected our region economically, David Owen with the South Dakota Chamber of Commerce and Industry says federal stimulus money kept many afloat. He believes the national debt can be managed.

“There’s always concern about the national debt. But we’ve had this concern for a long time. And quite honestly, we have found a way through economic growth and other measures we’ve done, to make sure that we haven’t tipped over the economy, with that kind of debt,” said Owen.

Goss believes our country could do more than service the debt, but work toward recovery.

“No one can outcompete us in either manufacturing or agriculture. We need to not be afraid of competition. Let’s engage in competition we will win that battle,” said Goss.

If creating and maintaining financial stability isn’t achieved, Goss is worried about the years ahead.

“Someone’s going to ultimately pay for this, I will call it overspending in many cases,” said Goss. “And what we’ve done so far is pushing it off to those younger than me, the younger generation.”

Goss believes finding and training skilled workers will determine how fast the economy will stabilize.

The top three countries that own U.S. bonds include Japan, China, and the United Kingdom.

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