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We must be cautious of the excess of euphoria that emerges from many statements about the so-called European “Next Generation” funds. If any, evidence suggests fiscal multipliers are poor, even negative, in highly indebted and open economies. The pace of global recoveries since 1975, according to the OECD shows a weaker trend.ĭeficit spending is mostly devoted to current spending, which leads to an almost negligible potential growth improvement. A $20 trillion fiscal and monetary boost is expected to deliver just a $4 trillion real GDP recovery followed by a rapid return to the historical trend of GDP growth this will likely lead to new record levels of debt, weaker productivity growth and slower job recovery. The diminishing returns of stimulus plans are evident. We need to let the economy breathe and strengthen, not bloat it. The economic debacle happened due to lockdowns and the recovery comes from the reopening. I recently had a conversation with Judy Shelton where she mentioned that the recovery would be stronger without this latest massive stimulus package. The alleged positive effects of a $1 trillion stimulus plan fade shortly after three months. Artificially boosting GDP with large government spending and monetized debt generates a short-term sugar high that is rapidly followed by a sugar low. The diminishing returns of stimulus plans are very evident. Something is not right when these figures come significantly below estimates in an environment of massive upgrades to gross domestic product (GDP). The United States retail sales and jobless claims weakness, significantly below estimates, coincides with the largest fiscal and monetary stimulus in history.