Watching with interest, the significant US auction calendar for the week, in conjunction with the rise in US yields and yen weakening, as well as Fed Jerome Powell concerns on fiscal sustainability, when it came to selecting our title analogy we decided to go for “Fiscal illusion”. In their book Democracy in Deficit (1977), James M. Buchanan and Richard E. Wagner suggest that the complicated nature of the U.S. tax system causes fiscal illusion and results in greater public expenditure than would be the case in an idealized system in which everyone is aware in detail of what their share of the costs of government is. Finally, another example of fiscal illusion may be seen in deficit spending. CATO Institute economist William Niskanen (2004), for instance, has noted that the "starve the beast" strategy popular among US conservatives wherein tax cuts now force a future reduction in federal government spending is empirically false. Instead, he has found that there is 'a strong negative relation between the relative level of federal spending and tax revenues'. Tax cuts and deficit spending, he argues, make the cost of government appear to be cheaper than it otherwise would be. “Fiscal illusion” can be seen in local property tax politics.
In this conversation we want to look at current fiscal trajectory of the US budget deficit and again on a potential second inflationary wave to materialize later in 2024 as well as specific market views and trade ideas.
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Synopsis:
Fiscal illusion?
Views and markets muses
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