Goldman Sachs Issues US Economy a Red Flag

The projection of Goldman Sachs shows extreme financial losses which have the tendency to slow down the American economy. According to the firm, the federal deficit spending moves through the "uncharted territory" on Sunday. It further indicates that the Congressional Republicans and Trump administration could no longer depend on the tax reform to boost economic growth.

On the back of the aggressive plan for infrastructure along with the budget that attracts hostile criticism, Goldman Sachs noted that federal deficit climb to 5.2 percent by US growth next year, hence, it could continue to reach even higher.

The Republican Party mainly relies on the fiscal stimulus from the tax reform and most of the companies have announced their investment projects, allocating bonuses. While many taxpayers take advantage of lower rates in order to be secured against the public angst in November. Moreover, most survey shows that the GOP would likely blow up the Congress while the poll figures of US President Donald Trump remained steady below 50 percent.

However, the American investment finance company told that economic stimulus provided by tax revision could possibly decrease the returns after a year. The increase in economic spending is expected to improve growth by 0.7pp this year and 0.6pp in the next, showing a list of reasons for the conspiration of debt and expenditures to weaken the US economy.

Goldman also mentioned that programs under income support, Medicaid, Medicare and Social Security are the primary accountable for the expected boost in mandatory spending, while tax reduction is partially responsible for it. The crucial fiscal decline occurred against the spending plans of Trump that caused critical remarks from both right and left wing.

Based on the estimated level of the Congressional Budget Office (CBO), the current rate of the US debt to gross domestic product (GDP) is roughly 77 percent. In case that the current account imbalances remained unchanged, Goldman predicts that the percentage will acquire 85 percent of the GDP in the year 2021.

In 2017, the CBO published a forecast that the American debt and GDP would surge to 150 percent in 2047 if the trend loses its control. The analysts stated that the growth impact came from the deficit adjustments and not the level, while further increase would influence the world’s largest economy to have an unsustainable trend in the long-term. In addition to it, some of the deficit growth indicates changes that will not happen again like the temporary major effect of tax provisions. Ultimately, the control of Congress has the chance to change after the midterm election this year which would make it more difficult bolster deficit.