The key link between the fiscal deficits of 2020-2021 and the consumption behaviour of forced savings

We will illustrate our analysis with the cases of the United States and the euro zone. In 2020-2021, governments have run up massive fiscal deficits, in particular to finance public transfer payments to households that have maintained and even increased their purchasing power despite the crisis. But households have not been able to consume normally because of the health crisis: they have therefore accumulated large forced savings. From 2022, governments will reduce fiscal deficits, and there are then two scenarios: Either households will consume their forced savings, and this additional consumption will offset the reduction in the fiscal deficit and prevent this reduction from driving down growth; Or households will continue not to consume their forced savings ( and use it to buy existing shares and existing housing, which simply drives up the prices of these assets without any impact on GDP), and the reduction in fiscal deficits will lead to a contract ion in activity.