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The cost of the "strong" U.S. economy

Data: Bureau of the Fiscal Service; Chart: Harry Stevens/Axios

Despite massive amounts of money being pumped into the economy by both fiscal and monetary policy, U.S. growth is slowing, not accelerating.

Why it matters: Last year Congress signed a 2-year agreement to increase spending $300 billion, in part to pull the economy out of its slow-growth malaise following the financial crisis and put the U.S. back on track for 3% annual growth or higher.

  • But 2019's slowdown in GDP growth has shown that even hundreds of billions in deficit spending combined with trillions in tax cuts and bond buying aren't enough.

Driving the news: The U.S. budget deficit rose by nearly $120 billion in July, a 27% increase over a year ago, the Treasury Department announced Monday. The fiscal year deficit through July is now $866.8 billion, higher than the entire deficit from fiscal 2018 and on pace to top $1 trillion, making it the largest U.S. deficit since 2011.

  • A new agreement signed in July to avert another government shutdown and possible debt default will add an additional $320 billion in spending over the next 2 years, but will do little to increase U.S. competitiveness and growth, experts say.

Reality check: The spending binge that has taken place during the late stages of an economic recovery has U.S. GDP on pace to grow around 2% this year, which is about the average for the previous 8 years.

What they're saying: "The direct impacts and uncertainty of tariffs, trade and other policy disruptions have mitigated the intended stimulus from the individual and business tax cuts," Steve Skancke, chief economic adviser for investment manager Keel Point and a former Treasury Department official in the Reagan administration, tells Axios.

  • Worse, Skancke points out, business investment has fallen in the first and second quarters and continued corporate buybacks show companies "lack of confidence in the outlook for the economy."
  • "So far consumer sentiment has supported growth." But "it’s hard to imagine that business and trade angst won’t spread to consumers in Q3 and Q4."

The bottom line: "America should be in a boom, with three enormous fiscal-stimulus measures in the past three years," Nobel laureate Joseph Stiglitz wrote in an op-ed for Project Syndicate on Friday.

  • "If it takes trillion-dollar annual deficits to keep the US economy going in good times, what will it take when things are not so rosy?"

Go deeper: U.S. budget deficit blows past last year's total with 2 months to go

Economy