The Fed must be careful to avoid bank deposit crowding out
Rising US government debt will have a major effect on bank funding
As the next steps for coronavirus relief legislation in the US Congress remain on pause, it is an important moment to reflect on what the recent surge in government debt – at least $2.8 trillion and counting – will mean for the economy.
There is no doubt that this spending has helped the struggling US economy, and while an outright sovereign debt default isn’t in sight, an increase in the supply of government debt will have major implications for the funding capacity and financial stability of
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