Last week, I reported on some claims by Australian private sector economists that the Australian government was deplete of policy tools (“run out of ammunition” was the cute term used among these self-serving characters) and would not be able to handle the Brexit fallout – see When journalists allow dangerous economic myths to pervade. It was obvious that the statements were nonsensical and only reflected the dangerous neo-liberal ideology that discretionary fiscal policy should be constrained to the point of being not used! In the last week, some major central bankers around the world have given speeches which suggest they also understand that fiscal policy has come to the fore and provide some certainty to the world economy. The latest estimates from the ECB of the Eurozone output gap certainly provide the evidence base to justify a major expansion of fiscal deficits across the Eurozone. The research is suggesting that there is a significant output gap which is evidence of insufficient aggregate spending rather than any structural shifts in potential GDP. I guess they are warming the Member States for more expansionary action although the message is very clear – the European Commission has to abandon its austerity mindset and provide some old-fashioned deficit stimulus – quick smart!
On Brexit, last time I looked (early this morning), British government bonds have risen substantially in price on the secondary markets and the yield curve has fallen rather symmetrically across all maturities.
In other words, the bond investors do not believe the British government is going to run out of cash and are falling over each other to buy the gilts.…Bill Mitchell – billy blog
ECB research shows huge output gap and need for fiscal expansion
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Macroeconomics in Germany: The forgotten lesson of Hjalmar Schacht
Biagio Bossone, Stefano Sylos Labini
If you haven't yet read this, I urge doing so.
The history makes Germany and therefore the otherwise insane EZ policies understandable. The Germans can't do the right things now because Hitler, and they are forcing everyone into their mold. So the EZ economies are moulding, and even though not in the EZ the UK is trapped in the austerity regime, too, through EU agreements.