Doing too much (Biden administration policy) can be dangerous

The United States’ fiscal response to the COVID crisis in 2020 and even more so in 2021 is oversized. It leads to risks in all scenarios: If US households spend their excess savings, which is not the case currently, the risk will be inflation , provided stronger Phillips curve effects reappear; If US households invest their excess savings, the risk will be asset price bubbles; Long-term interest rates may rise (crowding-out effect), failing which the highly expansionary monetary policy may become irreversible and asset price bubbles may amplify; The resulting external deficit and external debt may erode the “quality” of the dollar and weaken its reserve currency role.