A shared concern

The US economy is step by step recovering after the COVID-19 “storm” is gradually passing and President Joe Biden’s US$1.9 trillion coronavirus relief package has promoted its effects. However, the world’s largest economy is also facing a series of major challenges, especially financial risks, in the coming time.

The US website Project-syndicate.org recently pointed out that the US is and will face the risk of a rising debt bubble from the current economic stimulus packages. Over the past decades, especially in the times of economic crisis, the US has often adopted the solution “financial democratisation” to provide needy households and the poor loan opportunities to buy houses and improve their lives. Then, financial institutions will use these homes as collateral to generate cash flows.

That financial mechanism created a “financial bubble”, resulting in a serious economic-financial crisis in 2008 when the bubble burst. Therefore, with the US government’s current enormous stimulus packages, economic experts have warned that the same “dangerous scenario” is likely to be repeated.

At present, temporary and freelance workers are also offered loans. Millions of people have opened accounts on financial apps and can speculate on stocks. In his recent speech, US Federal Reserve Chairman Jerome Powell affirmed that the country’s current public debt is not worrying and that the government does not face difficulty in paying interest. However, he admitted that the national debt, currently at US$22.96 billion, is growing significantly faster than the economic growth rate, and this is unsustainable. Thus, the US should not take the risk of financial bubble lightly.

Another major problem that worries the US in the post-Covid-19 era is the strongly expanding gap between the rich and the poor. Statistics on the US stock market showed that about 10% of people in the upper quintile of the same income scale account for more than 87% of the stock market’s total assets, while 50% of those in the lower group only hold 0.7% of the total assets. Analysts also pointed out that, with the rise of technology firms and the widening wealth gap, the risk of unemployment is also unprecedentedly high as “Big Tech” companies (five major US tech firms: Google, Apple, Microsoft, Amazon, Facebook) are “stealing” jobs from many people. According to the Project-syndicate.org website, for every job created by Amazon, the retail industry loses three jobs.

Another big concern for the US is that the economic recovery momentum is still fragile and the threats from COVID-19 remain very large, despite statistics showing that the national economy has been experiencing a K-shaped recovery. The continuous emergence of new coronavirus strains has raised concerns that the existing types of vaccines are not strong enough to curb the spread of the pandemic. In addition, the recent serious COVID-19 resurgence in India, Japan and many countries in Southeast Asia and Africa has displayed that the external environment is not favourable for the US economy. It may take a quite long time before the global business climate can return to the pre-pandemic normal state.

The US has mobilised internal forces to fight the pandemic and strongly stimulate the economy in the recent past with the expectation that the economy will “turn to a new page” in 2021. However, the aforementioned analyses show that the dangers still remain significant, and this is also a shared concern of many economies around the world.