Carney inexplicably STILL wants to cut the state budget, not grow it. In spite of all of the evidence to the contrary, he still views debt as an anathema, and growth killing austerity as a virtue. He basically still believes in the utter failed Republican economics of trickle down. It makes no sense, and in the era of very cheap borrowing, it is the exact opposite of what we should actually be doing.
And what’s worse, the markets have taken notice. [See Swiss Negative Yield Bonds]Smart money is beginning to adjust to the new normal and accept the fact that deficit hawks and austerity evangelists like Carney are determined to strangle economic growth with their wrongheadedness – which would be simply goofy at this point, were it not so pernicious. Here is Paul Krugman on the topic:
Cheap Money Talks
So what’s going on? I think of it as the Great Capitulation.A number of economists — most famously Larry Summers, but also yours truly and others — have been warning for a while that the whole world may be turning Japanese. That is, it looks as if weak demand and a bias toward deflation are enduring problems. Until recently, however, investors acted as if they still expected a return to what we used to consider normal conditions. Now they’ve thrown in the towel, in effect conceding that persistent weakness is the new normal. This means low short-term interest rates for a very long time, and low long-term rates right away.
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Many people don’t like what’s happening, but raising rates in the face of weak economies would be an act of folly that might well push us back into recession.
What policy makers should be doing, instead, is accepting the markets’ offer of incredibly cheap financing. Investors are willing to pay the German government to take their money; the U.S. situation is less extreme, but even here interest rates adjusted for inflation are negative.
Meanwhile, there are huge unmet demands for public investment on both sides of the Atlantic. America’s aging infrastructure is legendary, but not unique: years of austerity have left German roads and railways in worse shape than most people realize. So why not borrow money at these low, low rates and do some much-needed repair and renovation? This would be eminently worth doing even if it wouldn’t also create jobs, but it would do that too.
I know, deficit scolds would issue dire warnings about the evils of public debt. But they have been wrong about everything for at least the past eight years, and it’s time to stop taking them seriously.
They say that money talks; well, cheap money is speaking very clearly right now, and it’s telling us to invest in our future.
