Tuesday, November 25, 2008

Who Doesn't Enjoy A Good Spending Spree?

Like good little Keynesians, countries around the world are whipping out their nearly maxed-out credit cards in an effort to boost economic growth. It's easy to understand why. You can't expect much of a boost from consumption, housing, business investment, or exports. The only lever left to pull is government spending. And since governments aren't capable of just getting out of the way and letting excesses correct themselves (as they should), we're sure to see unprecedented growth in budget deficits and government debt in the next couple of years.

The U.K., for example, has recently announced its fiscal stimulus plans. Their budget deficit is projected to double next year and then increase another 50% in 2010, leading to a projected budget deficit that is greater than 8% of GDP - a personal best for the U.K.

Just as in the U.S., this eventually has to be repaid in the form of higher taxes and/or lower spending. This has been the enduring failure of Keynesian economics. Everyone loves a good spending spree. No one ever wants to take away the punch bowl.





Disclosure: The Rubbernecker is long gold and short the dollar and the plundering of our children's financial security.


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