The US may also have a huge fiscal deficit due to the Corona epidemic. Due to this, there is a possibility of a sharp rise in inflation in the country.
According to an analysis of the think-tank Committee on Responsible Federal Budget, by the end of 2021, the fiscal deficit will reach 15 percent as compared to the US gross domestic product (GDP). This would be the biggest loss since the Second World War. The recently passed $ 1.9 trillion Corona relief package has greatly increased the deficit.
Experts say that due to such a huge deficit, inflation is expected to increase rapidly. Some analyzes have claimed that the rate is still higher than it appears in government data. President Joe Biden has announced an infrastructure package of about $ 1.25 trillion. Experts say that if it is passed by Congress (Parliament), then the deficit will increase even more.
Fed Reserve raids dollars
In the last 12 months amid the Corona epidemic, the US government has generously provided relief to the people. For this, the Federal Reserve (Central Bank of America) has done additional printing of dollars. Foreign buyers purchased only half of the bonds issued by the US government in the last 12 months. The result was that additional dollars had to be printed to make up for the remaining amount. It is being described as a recipe to increase inflation.
Imports from China reached the highest level
Significantly, in February 2021, the US trade deficit exceeded one trillion dollars. This is a record. Imports from China reached the highest level in the US in the last 12 months by February, due to the demand created in the country due to the cash support from the US government. But there was not enough production within the country to supply it. Therefore, there was a glut of imports.
It never happened in 100 years
An analysis published on the Hong Kong website Asia Times said that a challenge has arisen in front of the US, which has never happened in the last century. The analysis was first published on the Law and Liberty website of the United States. According to this, the only way to stabilize your economy in front of the world in the last decades was to invest in dollars. Therefore, American bonds were immediately bought by foreign buyers. Due to this, America used to remain in a state of big-spending even when it was in deficit.
China's intention to reduce the status of the dollar
Now China stands as an alternative. According to experts, China's understanding is that America's fiscal irresponsibility will reduce the status of the dollar as a world currency. Professor Bai Gang at the Fudan University of China has said- 'In simple language, it has happened that America has printed its currency on a large scale in the last one year. This has given people the power to survive during partial or full captivity due to the corona epidemic. This method was effective. This brought the stock market to a record high. But I want to emphasize that this has happened in the future at the cost of dollar capacity. '
Gang said- 'A country which is dominated, it can maintain its currency dominance for a long time even after losing national supremacy. The pound sterling continued to function as a global currency until about 1930, even after Britain's domination ended. In that sense, the dollar is still stronger than any other currency. But if the currency continued to be printed to get relief from the internal situation, the status of the dollar as the main currency of the international payment system would surely have a serious impact. Significantly, one of the most important reasons for America's dominance over the world is the presence of the dollar as a world currency.