Welcome to Thoughts on the market. I'm Andrew Sheets, Chief Cross Asset

Strategy from Morgan Stanley, along with my colleagues providing a variety of

perspectives, I'll be talking about trends across the global

investment landscape and how we put

those different ideas together.

It's Wednesday, January 29th at 9 a.m. in New York.

Next week we'll see the 2020 U.S. presidential election cycle kick off with the Iowa

Caucasus, followed a week later by the New Hampshire primary.

My colleague Michael Zesus has discussed his thoughts on the U.S. policy outlook on this program and will continue to provide

updates and new analysis as the year goes on. So on today's episode I want to explore

one of these threads, a topic that is relevant in an election year but but also more generally as part of the economic outlook, fiscal policy.

About nine years ago, which is both forever in financial market terms and not really that long ago,

a popular consensus was forming among market analysts and political observers.

Sovereign deficits were bad, and they were extremely important for how one should approach investing.

The argument seemed to be presenting evidence in real time, as countries like Greece, Italy, and Ireland struggled with large deficits in the wake of the great financial crisis. While the issues were most acute in the Eurozone, they had a major impact in both the US and the United Kingdom, driving lawmakers in both countries to propose tighter fiscal policy. The results were real. At the worst point of 2009 in the

wake of the Great Recession, the US federal deficit was equal to almost 10% of the overall

US economy. By the start of 2016, it had improved to just 2.5%.

Over the same period, the budget deficit in the UK

fell from 10% of GDP to just 4.5%. Given that the U.S. economy is about 21 percent of

G.D. given that the U.S. economy is about 21 trillion dollars, these percentages

represent very, very big numbers.

And those numbers had consequences, with belt tightening in the US, UK, and Eurozone,

...