Stimulus growth is an illusion
The economy grew by 0.3 percent in the first three months of this year. But isn't that the least we should expect?
The economy grew by 0.3 percent in the first three months of this year. At that rate, by 2015 we might just about have returned to where output was in 2008.
Each year, the government is injecting over £100 billion more money into the economy through its fiscal policy.
It is keeping interest rates low to encourage us to spend and borrow and invest. It has handed banks a mind boggling £350 billion plus of QE money. It has run an £80 billion business lending scheme.
It would be extraordinary if, with all that stimulus, output was still falling.
My fear is that all this stimulus is unsustainable. All that overspending means government debt. All that cheap credit is discouraging businesses from paying off debts, and storing up trouble ahead. Like cholesterol in the economic arteries, one layer of malinvestment builds up upon another.
How much of the recovery is real growth, and how much is going to prove to be sustained by candy floss credit?
In fact, I am starting to think much of the post-2007 stimulus is simply making thing worse.
In the 1970s, fiscal activism failed to engineer real, lasting growth. So, too, monetary activism today.
This blog originally appeared on talkcarswell.com
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