Politics
Out of context: Reply #16074
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- TheBlueOne0
Martin Wolf in the Financial Time argues that we should actually listen to the bond markets and not the bullshit that politicians are spewing about austerity budgets:
"...listen to the markets. They are saying: borrow and spend, please. Yet those who profess faith in the magic of the markets are most determined to ignore the cry. The fiscal skies are falling, they insist...
...Are the markets mad? Yes, insist the wise folk: the biggest risk is not slump, as markets fear, but default. Yet if markets get the prices of such governments’ bonds so wrong, why should one ever take them seriously?...
...The massive fiscal deficits of today, particularly in countries where huge financial crises occurred, are not the result of deliberate Keynesian stimulus: even in the US, the ill-targeted and inadequate stimulus amounted to less than 6 per cent of gross domestic product or, at most, a fifth of the actual deficits over three years. The latter were largely the result of the crisis: governments let fiscal defaceits rise, as the private sector savagely retrenched...
...grounded in the seminal work of Prof Rogoff and Carmen Reinhart of the Peterson Institute for International Economics in Washington – is that growth slows sharply once public debt exceeds 90 per cent of GDP. Yet this is a statistical relationship, not an iron law. In 1815, UK public debt was 260 per cent of GDP. What followed? The industrial revolution...
...What matters is how borrowing is used. In this case, moreover, we need to consider the alternatives. If the fiscal deficit is to be sharply reduced, the surpluses in the rest of the economy must also fall. The question is how that is to be compatible with rapid deleveraging and expanded spending. In my view, it cannot be. A more likely outcome, in present circumstances, is mass default, shrinking profits, damaged banks and a renewed slump. That is what would happen if today’s contained depression ceased to be contained...
...now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings. Markets are loudly saying exactly this. So listen."