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The stagnation era

President Biden recently signed into law a bill authorising $1 trillion of extra infrastructure spending, just eight months after a $1.9 trillion fiscal stimulus package. Which poses a question that should trouble all investors: why does the US need so much extra spending?

The thing is that economic policy was already super loose. Not only are real interest rates sharply negative, and expected to remain so for years, but also government borrowing was big even before the latest fiscal boost: the OECD estimates that the cyclically-adjusted primary deficit (a measure of the fiscal stance) will be 13 per cent of GDP this year.

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