Is prophylactic protection needed for excessive stimulus?

| 9 February 2009 10:30

Last week, Willem Buiter sized up the U.S. and the U.K. and found their desire to enact deficit-financed fiscal stimulus not credible.

On a number of occasions I have cautioned against deficit-financed fiscal stimuli in countries whose governments have weak fiscal credibility, that is, countries where current tax cuts or public spending increases cannot be credibly matched by commitments to future public spending cuts and tax increases of equal present discounted value. I believe that both the US and the UK fall into this category.

Translation: Britain and the United States are banana republics and should be treated as such. I am not taking a view here yet but this is piece I recommend you read (link at the bottom). In he interest of disclosure, I should note I have been calling for stimulus recently despite having sympathy for the Buiter position on this issue.

The attached video does a better job of summing up the mood Buiter invokes and the need for prophylactic protection from so much stimulus. (Hat tip Alice Cook)

Source
Fiscal expansions in submerging markets; the case of the USA and the UK – Willem Buiter’s Mavercon

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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