IMF Cautions America Over Runaway Government Spending ‘Out of Line With Long-Term Fiscal Sustainability’

While Treasury Secretary Yellen is touting the end of “American isolationism,” the International Monetary Fund is taking aim at the optimism of American policymakers, arguing at its annual meeting at Washington this week that America’s runaway spending is unsustainable. Ms. Yellen is pledging to further economic ties with American allies and emerging markets to strengthen supply chains, which she calls “friendshoring — which bolsters our nation’s economic security and brings benefits to other economies,” she said in a statement on Tuesday ahead of the World Bank and IMF’s spring meetings. In defense of American spending that far exceeds other modern economies, Ms. Yellen said that “from the start of the Administration, President Biden has made clear that American isolationism was over.” Amid all that spending, though, the IMF said in its annual World Economic Outlook on Tuesday, “something will have to give.” The IMF says that the long-term fiscal and financial stability around the world is being put at risk by an overly generous Washington seeking to save the day in developing economies and new global conflicts. That reasoning is in part prompting a fresh wave of “isolationism” — a foreign policy President Trump and his allies call “America First.” “The exceptional recent performance of the United States is certainly impressive and a major driver of global growth,” the IMF said in its report. “But it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability.”The Congressional Budget Office predicts that federal debt held by the public will reach $45.7 trillion by 2033, which is 114 percent of GDP, up from 97 percent at the end of 2023. High-interest costs, Covid-related stimulus, and big investments in infrastructure and clean energy have pushed American deficit spending to historic highs in recent years. Ms. Yellen has aimed to quell concerns of overspending. She said in her remarks that the global economic outlook is “resilient,” “powered by a strong U.S. economy.” Inflation is dropping, the gross domestic product is growing, and the labor market is strong, she said. The IMF projects global growth will continue at 3.2 percent this year and 3.1 percent next year. Debt sustainability reflects the cost to service debt as a percentage of GDP, adjusted for inflation, as Ms. Yellen has said in the past. The White House projects that real net interest expenses will stay below 2 percent in the next decade. High interest rates, however, could undermine the Treasury Department’s sunny forecast. Ms. Yellen also delivered on Tuesday a plea for Washington “to provide critical support for our allies” as the debate over American aid to Ukraine and Israel remains stalled in Congress. The Biden administration has imposed additional sanctions on Russian assets and targeted more than 500 individuals and entities connected to Iran and its proxies, which launched an unprecedented attack on Israel last weekend. “This is a humanitarian and moral imperative,” Ms. Yellen said, “and also an economic one given the war’s significant negative impacts on economies around the world.”

IMF Cautions America Over Runaway Government Spending ‘Out of Line With Long-Term Fiscal Sustainability’

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