America’s fiscal stance has loosened a bit in the past few months. Tax changes passed at the end of last year plus a recent budget deal to remove earlier caps on spending will combine to increase the federal deficit by about 1.6 percentage points of gross domestic product in the next few years. By 2027, the federal government’s net borrowing could amount to as much as 7.3 per cent of GDP.Some people think this is a problem. Traders, however, do not.The government’s real long-term borrowing costs are lower now than they were at the beginning of 2016. “Bond vigilantes” are clearly unconcerned about the government’s ability to fund its debt issuance. But this is not good news for the politicians — real yields also imply economic stagnation over the next few decades and significant risk of a
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America’s fiscal stance has loosened a bit in the past few months. Tax changes passed at the...