Conversely, it's bad to run a deficit when the economy is booming or overheated.
Originally Posted by lustylad
This is where Biden and his spendthrift Democrats screwed up badly.
The economy was already on a solid path to recovery in early 2021. The covid-related stimulus bills enacted during the prior year were already more than what was needed for the economy to bounce back from the covid-induced shutdowns. Under the circumstances, the $1.9 trillion "American Rescue Plan" passed in March 2021 was reckless and unnecessary, goosing the economy to overheat and pushing up inflation to a 40-year high.
As a result, our real GDP grew by an eye-popping 5.9% in 2021, way faster than its potential long-term, non-inflationary rate of expansion. Overheated demand was the chief culprit behind the surge in inflation, which jumped from 1.4% in Jan. 2021 to a peak of 9.1% in June 2022 (12-month CPI increase). CPI inflation has since receded again to 5.0% last month.
Here's a graph showing the recent deficit trends. Without the American Rescue Plan, the deficit would have shrunk dramatically in 2021, the economy would not have overheated, inflation would not have spiked dramatically, the Fed would not have reacted by raising interest rates as much as it did, fewer banks would be at risk of failing, and we wouldn't now be fretting about an imminent recession to come.