Total debt (government, corporate, and individual) in the United States has increased from $50 trillion in 2008 to over $80 trillion today.
The federal government ran a deficit of $3.1 trillion in 2020. If passed, President Biden’s $1.9 trillion COVID-19 relief proposal will pay for much of itself with bond sales. With all this debt supply, you would think that if demand does not increase, then interest rates would have to rise.
Trade deficits reduce economic growth, according to a theory posited by the great 18th-century Scottish economist and philosopher David Hume. The outflow of gold to pay the shortfall (trade deficit) would contract the money supply and automatically lead to the reduction of domestic prices as if by an ‘invisible hand.’[i]
There is no way to know for sure. Still, when the Fed adds money to the economy by buying bonds from non-banks, the stock market seems to go up. When they subtracted cash from the economy by not reinvesting mortgage payments (quantitative tightening), it went down.
Some believe that an inverted yield curve causes a recession as banks become less willing to lend, as their cost of funds (short-term rates) are higher than the price they can charge on a loan.