Aug 21, 2016
In Japan, Prime Minister Shinzo Abe announces yet another fiscal stimulus. In Europe, economists nod approvingly when the euro group waives fines on Spain — which, despite years of growth, still runs deficits way higher than the bloc’s rules allow. In the US, both presidential candidates promise more government spending.
So it is clear that attempts, however tentative, to cut spending and pay down debt have given way to renewed enthusiasm for policies such as these, that are intended to boost demand instead. This is dangerous. If governments resort to sky-high debt and negative interest rates, despite moderate growth and normalised capacity utilisation, in an upswing, what will they do if and when their economies weaken again?