Richard Woo's "Run bigger fiscal deficits" theory

[failed_trad3r]

Running bigger fiscal deficits is a musical chairs game mastered by the r-thug-licans. In the beginning it's all nice and dandy, and people will credit re-thug-licans for the "recovery" but in the end it just ends in a bigger boom and bigger bust. Not to mention the oppossite party, the democrats will do anything in their power to prolong the musical chairs game, as people will blame the party in power when the bust hits.

So you got two parties continuing the musical chairs game, as to avoid any blame themselves, a recipe for disaster.

 

[Martinghoul]

Quote from benwm:
I'm not sure how Koo's theory really help out the PIIGs given the cost of funding...

It's ok running big fiscal deficits so long as the bond yield doesn't rise too high. Japan has had no problems on this front, but is the US 10yr bond yield really guaranteed to stay sub 4% for the next few years??

Debatable, to say the least.

Well, it sure doesn't help the PIIGS, 'cause they're part of a ccy union. However, you're right it's certainly debatable, but that's what makes it interesting.

 

[achilles28]

So now Japan is a success story????? lol

 

[Martinghoul]

Quote from achilles28:
So now Japan is a success story????? lol

Well, Japan is a country that has smth like 150% govt debt/GDP (conservatively), the 2nd biggest stock of public debt out there, a series of completely dysfunctional govts (no PM in power for longer than 9m for a while now), etc. And yet it funds itself at smth like 50bps (5y JGB yield is currently 44.5bps, 10y at 118bps). So at least for the moment it looks like it's doing smth right.

 

[achilles28]

Quote from Martinghoul:

Well, Japan is a country that has smth like 150% govt debt/GDP (conservatively), the 2nd biggest stock of public debt out there, a series of completely dysfunctional govts (no PM in power for longer than 9m for a while now), etc. And yet it funds itself at smth like 50bps (5y JGB yield is currently 44.5bps, 10y at 118bps). So at least for the moment it looks like it's doing smth right.

Since when do monetarists regard deflation as a good thing?

 

[Martinghoul]

Quote from achilles28:
Since when do monetarists regard deflation as a good thing?

Not saying deflation is good... You have to agree it's an achievement that they have been able to fund themselves for decades internally, given how dysfunctional and indebted the public sector looks, no?