How do deficits affect corporate profits in the next few years ahead or so? Could you please explain that for us?
Government deficits absorb capital that have its highest and best use in the private sector, not the government sector.
“How do deficits affect corporate profits in the next few years ahead or so? Could you please explain that for us?”
The textbook answer is there are two effects. One effect is that government competes with everyone else for money to spend, making it harder for companies to obtain capital, driving up interest rates and drawing money from other places, like stocks, to interest-bearing investments. The second effect is that companies which receive revenues from government spending will have enhanced future earnings, driving up stock prices for such companies. These effects are somewhat opposite but are the textbook effects.
The less-textbook effects are how increased gov’t spending puts wage pressures on individuals due to inflationary pressures—individuals can’t as easily afford housing and other purchases. This is what we call a positive feedback loop in which gov’t spends, the cost-of-living increases, gov’t has to spend more to pay for entitlements and gov’t wages that must go up to meet inflation, and you have a self-reinforcing upward inflationary demon (aka, an inflationary “spiral”).