>> I'm not clear on how any of this will lead to a recession.
Here are some reasons:
1) if government spending is half of GDP that means any increase in non-government economic activity will only have half the effect it otherwise could (with zero govt contribution) this works both ways though, but more importantly it means government spending is critical to the economy.
2) Debt is high, so there is a LOT of pressure to reduce govt spending, which would directly (negatively) affect GDP in the short term - see 1, gov spending is 0.5 of GDP.
3) Any rise in interest rates will result in 2 (the alternative is to just increase the debt). To spend more in interest, you have to spend less elsewhere.
4) If we get inflation (and they're trying really hard) they'll want to keep it low by raising interest rates, resulting in 2 (see 3).
Here are some reasons: 1) if government spending is half of GDP that means any increase in non-government economic activity will only have half the effect it otherwise could (with zero govt contribution) this works both ways though, but more importantly it means government spending is critical to the economy. 2) Debt is high, so there is a LOT of pressure to reduce govt spending, which would directly (negatively) affect GDP in the short term - see 1, gov spending is 0.5 of GDP. 3) Any rise in interest rates will result in 2 (the alternative is to just increase the debt). To spend more in interest, you have to spend less elsewhere. 4) If we get inflation (and they're trying really hard) they'll want to keep it low by raising interest rates, resulting in 2 (see 3).