The pandemic is the major independent variable and government efforts must, therefore, also be a major offsetting variable.
During the Great Depression (1930s), unemployment was similar to now, but government expenditures and money supply growth were modest; GDP plunged. During WWII, employment, government expenditures, the money supply and GDP soared. Now, the government and the federal reserve have reacted in a similar way as they did in WWII. The government is temporarily paying laid-off workers until the economy gets going again. Even with all this debt, there is a great demand for U.S. money because our low interest rates are higher than other major countries’ rates and our credit rating is excellent. Also, about 50 percent of treasury debt (held by the public) is held by other countries. If this pandemic can be quickly resolved, our economy could start growing later this year. This current quarter GDP will be very negative but any future positive growth will end this recession. Now, how is this debt resolved?
By the late 1950s, with the Korean War interlude, GDP growth and modest inflation brought debt as a percent of GDP back to pre-war levels.
It now depends on the pandemic; the case and death charts I update every day don’t yet depict a clear downward trend. Â
Kal Klatte