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Bank For International Settlements, Andrew Barr, National Post
Anybody remember the last G20 Summit? Hard to forget. It's only been--what? -- six months since the event, held in Pittsburgh last September. The words of our leaders, triumphant and self-congratulatory, still ring out today. Boasting of having launched "the largest and most co-ordinated fiscal and monetary stimulus ever undertaken," the G20 looked back at the London Summit, where Gordon Brown, the soon to be former PM of Britain, orchestrated a rousing session around the theme of spend, spend, spend to get the world out of economic crisis. "At that time [in London], our countries agreed to do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital. It worked."
Yesterday, the subprime government debt crisis, the direct product of the above-mentioned summits and other meetings of the world's economic and political leaders, produced another threat. The European Union, its members sliding into stimulus debt and losing market confidence, would again do "whatever is necessary" to end the crisis, restore confidence and protect the euro.
Whatever is necessary turns out to be more of the same. The amazing European and IMF economic stimulus machines will tackle their debt crisis with a new strategy: More debt! Already racked with rising deficits and debt loads that are in dangerous territory, the EU plans to fix the problem with US$1-trillion loan packages. And if the debt doesn't work, they'll crank up monetary policy and have the European Central Bank buy up government bonds and private bonds of banks that are lending money to the governments. That spells inflation, although the ECB said it would be taking countermeasures to "sterilize" or neutralize the inflationary impact of its bond plan.
The great muddle of Keynesian economics is crashing in on statists everywhere. The spending that was supposed to save Europe and the world economy is driving it to ruin. The Keynesian economists and forecasters who promised it would work and were plucking "green shoots" out of the economic desert failed to see the debt crisis rolling up behind them. As Peter Foster wrote on this page last week, the world is in the grip of Keynesian contagion, not the private or capitalist meltdown so many of the G20 leadership blamed when the crisis first struck.
The financial crisis was largely spawned by U.S. government policy to stimulate housing and monetary policy that kept interest rates low to stimulate growth. The policy response around the world was to pile on more stimulus, on the Keynesian belief that government spending and monetary fiddling can magically overcome the limits of markets. Instead of stimulating growth, however, the major industrial nations and their political leaders have driven their economies deeper into a quagmire of debt.
How nobody within the pompous self-satisfied cabal saw this coming is surely worthy of a detailed investigation by some authority. But who would do it? The International Monetary Fund, World Bank, United Nations, the European Commission? Maybe a whole bunch of Euro political leaders could be hauled before some U.S. congressional committee for a full-body inquisition into how they failed to appreciate that if you borrow US$5-trillion, it might have to be repaid, and that the borrowing might not generate the growth and prosperity claimed by the Keynesian economic models on which the spending was based.
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