Only a fraction of the excess fiscal deficit in 2020 and early 2021 will be spent: Fiscal deficit reduction in 2022 will be highly restrictive

Fiscal deficits (we look at the United States and the euro zone) will be reduced sharply between 2021 and 2022. For this reduction in fiscal deficits to not be restrictive and not reduce growth in 2022, all the forced savings built up in 2020 and 2021 due to the size of the fiscal deficits would have to be consumed (spent) in 2022. However, this will not be the case: some of these excess savings will be spent, while some will be invested in financial assets or in existing housing. This implies that fiscal deficit reduction in 2022 will indeed reduce growth.