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Fiscal dawn

One of the consequences of having issued a lot of debt, combined with an increase in interest rates to fight the inflation that was created by the massive debt issuance in the first place, is that you need to increase the country’s income to pay for it. If not, deficits grow wider and it gets worse with time. In the UK, it is expected that taxes will be increased to a point where the burden on individuals (and corporations) will be the highest since WWII, as you can see in the chart below. The measure, if passed, will mean that not only the economy will face a hawkish monetary policy, with more expected #ratehikes, but also a restrictive fiscal policy, which will definitely kill demand, and abate inflation, but will also, almost with certainty, push the economy into a recession with high unemployment. In the EU, the situation may be more complicated, since there is no fiscal harmonization, so it will depend on local governments to decide their tax policy. And in the US, it will depend what happens on #elections2024. If democrats continue in the white house and control Congress, we can see tax increases, which is unlikely if republicans win.

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Chart source: Bloomberg

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