“Saving the savers is not the priority…This is surely the time to encourage people to spend, spend, spend…” – Editorial in the Financial Times, Tuesday 6 January.
“Borrowing our way out of debt…is exactly the right prescription for our present problems…” – Anatole Kaletsky, The Times, Thursday 8 January.
“If the stimulus package is too weak, conservatives will pile on after it fails to deliver, claiming that the whole concept has been discredited…” – Paul Krugman, New York Times blog, Sunday 11 January.
Whatever the rights and wrongs of trying to fix the blow-up in credit with fresh money and debt, it’s time to spend! Spend! SPEND! regardless.
Will it work? Might it prove immoral? Can lumbering the future with new debts, just to patch over yesterday’s mis-allocation of capital, ever be justified?
No matter. New spending and debt is just what we’ll get… like it or lump it. Last week’s Washington bounce – scratched across equity, currency and commodity markets at Thursday lunchtime in New York – ran back into the red by the time London closed on Friday. Whether promised or paid, it had totalled $1.3 trillion on one day alone! But why ever not?
“Even if you’re deeply concerned about [our] future solvency,” Paul Krugman blogs from Princeton, “will going for, say, a $300 billion stimulus rather than an $800 billion stimulus do anything significant to help…?”
Put another way, “Obviously, the national deficit is important,” says Joe Stiglitz, America’s other No.1 bearded economist. But noting how some $300 billion of Obama’s $800bn stimulus will be instantly swallowed by regional state budgets (now $150bn per year in the red thanks to the collapse in local and property tax payments), “we also have to decide at this juncture what is the priority.
“And the priority is stimulating the economy. If you don’t stimulate the economy, the [government] deficit will get larger anyway, because GDP will go down and tax revenues will fall. So we’re caught between a rock and a hard place…[and] we need to spend more right now…We need real stimulus spending.”
Just roll back a moment, and you’ll see just how engrained this logic’s become. The key words are “spending”- its opposite, “saving”. The former is good (new hiring and growth), the latter is bad (job losses, lower tax receipts). And like pretty much everyone else who gets to make or commend government policy right now, Krugman thinks Washington needs to step up as “borrower of last resort”… hoovering up savings and spending them, rather than letting them moulder on deposit.
Why? Because US consumers are too leveraged (and thus too high-risk) to raise a red cent. And yet the world needs them – or somebody wearing their pants – to keep spending. Who else ever goes shopping with such forceful abandon? Which means someone else has to keep supplying new credit. And in the absence of that, someone else will just have to start printing cash.
Right or wrong just doesn’t matter. Because it is going to happen, whatever you think. So the best you can hope is to defend yourself and look after your own. Amid a credit depression, that means saving cash and cutting back spending. In the teeth of global inflation – such as the global money inflation running from 2002-2007 – it means exchanging cash for whatever else might just hold its value.
“If you do not buy goods,” said John Maynard Keynes in his infamous radio speech, Saving & Spending, of January 1931, “the shops will not clear their stocks, they will not give repeat orders, and someone will be thrown out of work.
“The best guess I can make is that whenever you save five shillings, you put a man out of work for a day.”
The US – here in our post-Keynesian, macro-minded 21st century – is liable for the employment of not just British dock-workers, but of the entire world. Most notably, or so consensus has it, the employment of three billion souls in emerging Asia.
The Anglo-Saxon weakness for using, not making…for eating, not growing…leaves more productive nations short of their No.1 market now our credit bubble’s blown up. So like Stiglitz says – only with bells on – Obama better start spending…and start spending big! Otherwise, the social unrest spied by Beijing’s policy wonks risks turning into outright social collapse in the world’s most populous nation.
Truly, madly and ever-so deeply, it’s hard to over-state the “big picture” analysis driving this global consensus right now. If US consumers can no longer support Asia’s capitalist boom, then the US government will have to do it instead.
Keynes advising laying in “a stock of household linen, of sheets and blankets to satisfy all your needs.” Less philanthropic investors…less convinced of the “added joy that they are increasing employment,” might want to lay in a stock of hard assets by buying gold or agricultural land – whatever can’t be printed or inflated to zero. But in the words of John Maynard Keynes, part-father of the Dollar’s reserve-currency status – and scourge of the failed Gold Standard: “These are only examples. Do whatever is necessary to satisfy the most sensible needs of yourself and your household…”
• This article was written by Adrian Ash of Bullion Vault.