NP: No gov't; best gov't..from John Lanchester LRoB

[David Morris]

On Fri, Sep 2, 2011 at 10:06 AM, alice wellintown
<alicewellintown at gmail.com> wrote:
> More from,
>
> The Non-Scenic Route to the Place We’re Going Anyway
> John Lanchester on the global economy
>
>
> The problem is in large part to do with the application of an incorrect metaphor, the easy-to-understand idea that a household has to live within its income. But governments are not households, and the idea of cutting your way to prosperity cannot be read across from an individual’s finances to those of the state. It’s a manifest fact that these policies, and the refusal to embrace stimulus spending, are causing economic slowdowns all over the world that are triggering the current anxiety in the markets, which is in turn causing the predicament of governments to intensify, as confidence sinks and the self-fulfilling expectations of a second downturn take hold. This in turn puts pressure on expectations about governments’ abilities to repay their debts, which further lowers confidence, and so on.

In other words, the refusal of governments to aggressively apply
stimulus spending is causing a downward spiral of their own making.
Hoover resurrected.  History has taught nothing.

> An incorrect metaphor! Yes, governments, and as Lanchester observes, the US Government is a very special one for several reasons including the fact that it can print the reserve currency, are not households; they needn't balance their checkbooks or pay their bills when they are due.

Governments DO need to pay their bills when they are due (remember
debt-ceiling hostage taking by the GOP?).  When they threaten to
renege on their bills, THAT's when full faith is shaken (as S&P
explained).  With current interest rates below zero, Governments are
FOOLS to not start borrowing for gigantic infrastructure projects that
will more than pay for themselves in the long run.  And when inflation
does start eventually, the lower value of money will make it that much
easier to pay back that free money.

David Morris