Fiscal policy concerns flagged in economic outlook report

Government now increases its spending to deal with recession. US reached its debt ceiling in 2011. This made Congress rose the debt ceiling, so the rating from Standard and Poors downgrade.  Federal Government shut down for few days in October 2013 because of the difference of budget.

The effect of fiscal policy affects stock and bond. Firms' decision is heavily affected by the fiscal policy. If the policy is not clear enough, firms may postpone new projects, move them overseas, or abandon it. The debt ceiling influences the amount of debt that U.S. Department of Treasury can give to bond holders. Eventually, it affects both investment-grade and high-yield debt securities. At the end, the IMF gives out 6 main priorities for fiscal policy.

The government increases spending in order to decrease real interest rate. This policy is to attract people to consume more. However, it has its down point. More people have incentive to borrow more. Therefore, the result is the Congress rose the debt ceiling. Federal Government then encountered problem: budget deficit. Since the government increases the spending, its budget decreases. With so many people wanting to borrow, the budget deficit increases. Therefore, Federal Government shut down in October 2013.

Also, the key that IMF gives out has so many contradictions. To lower the health care cost equals to decrease tax. This may boost the real interest rate. If so, investment decreases. This will be harder for Government to increase investment. Also, another goal is to increase spending on infrastructure. Recalls that the Federal Government used to have so much deficit that forced it to shut down for few days, why increasing spending more? This makes the fiscal policy more unclear, therefore, may affect badly on stock and bond like the article mentions.