I believe we should cut spending now, and massively to avoid a fiscal crisis. I have never believed the Keynesian rubbish that governments can prime the pump when private sector demand collapses. To offset the deflationary impact, monetary policy should be expanded as far as possible. QE isn't inflationary because monetary growth has collapsed.
If Europe, the US, Asia and Britain came together and announced a massive monetary expansion, the crisis would be over sooner than we think. Central banks could purchase corporate bonds through open market operations. The Bank of England has used the newly minted money to buy gilts instead of corporate bonds. It is banks that need liquidity. They can lend this money out into the real economy, providing ''real help now.''
Capacity utilization is at an all time low, at 68% in America, and 60% around the world. That will put a ceiling on inflationary pressures for now. Also, according to Ambrose Evans Pritchard, the monetary multiplier ran at 1.6 on average during the last decade. It is now at 0.893. As he said in his article, ''The velocity of money has slowed to a crawl.''
The output gap in America is 7%. There is plenty of room for monetary expansion. The Great Depression was in part a consequence of the Federal Reserve failing in its remit to provide liquidity to the banking system when it reduced the money supply by 1/3.
Then when the recovery returns, the Bank can engage in open market operations by selling back the bonds, thus reducing the money supply. They can also use interest rates, but interest rates should stay as low as possible for now.
Although I am an Austrian in the economics sphere, we are not in a position to implement its doctrine. While we have central banks and a fiat currency, we should use them. When we have finally recovered, and if governments have the guts to slash spending and offset that with monetary expansion, the deficits will be small, and some may have balanced budgets or even surpluses. Surpluses may be a pipe dream however due to automatic stabilisers. But if we continue with unconstrained discretionary spending, our credit rating could be downgraded and a gilt strike will follow. We should have a decade after the crisis to balance budgets around the world, before a phased return to a gold standard. Governments have shown them to be completely incapable of managing a fiat currency properly. It allows them to indulge in corporatist fascism and fund special interest groups. It's time to return to fiscal prudence... now.
Capacity utilization is at an all time low, at 68% in America, and 60% around the world. That will put a ceiling on inflationary pressures for now. Also, according to Ambrose Evans Pritchard, the monetary multiplier ran at 1.6 on average during the last decade. It is now at 0.893. As he said in his article, ''The velocity of money has slowed to a crawl.''
The output gap in America is 7%. There is plenty of room for monetary expansion. The Great Depression was in part a consequence of the Federal Reserve failing in its remit to provide liquidity to the banking system when it reduced the money supply by 1/3.
Then when the recovery returns, the Bank can engage in open market operations by selling back the bonds, thus reducing the money supply. They can also use interest rates, but interest rates should stay as low as possible for now.
Although I am an Austrian in the economics sphere, we are not in a position to implement its doctrine. While we have central banks and a fiat currency, we should use them. When we have finally recovered, and if governments have the guts to slash spending and offset that with monetary expansion, the deficits will be small, and some may have balanced budgets or even surpluses. Surpluses may be a pipe dream however due to automatic stabilisers. But if we continue with unconstrained discretionary spending, our credit rating could be downgraded and a gilt strike will follow. We should have a decade after the crisis to balance budgets around the world, before a phased return to a gold standard. Governments have shown them to be completely incapable of managing a fiat currency properly. It allows them to indulge in corporatist fascism and fund special interest groups. It's time to return to fiscal prudence... now.
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