by John Rubino, Dollar Collapse:
Not so long ago the financial world viewed certain numbers as limits beyond which lay trouble. Interest rates near zero, for instance, were thought to risk destabilizing the banking system. And government fiscal deficits above 3% were considered so dangerous that exceeding this level was prohibited by the Maastricht treaty that all euorzone members were required to sign.
Those numbers — 0% and 3% — are still considered bad. But now for the opposite reason: They’re insufficiently aggressive.
A big part of the world, as everyone now knows, operates with negative interest rates. And prominent economists are urging even greater negativity as a way to make government debt profitable and get people borrowing and spending again.
More recently, fiscal deficits — barely below 3% of GDP in the developed world — have come to be seen as dangerously inadequate and in need of dramatic expansion. From today’s Bloomberg:
A passel of investors, academics and even central bankers are calling on governments to spend more and tax less to provide a budgetary boost to the struggling global economy. That’s a 180 degree turn from the bond vigilantes of yore who pressed for smaller deficits and less debt about a quarter century ago.To hear the budget backers tell it, bigger shortfalls are a no-brainer. With interest rates at — or even below — zero in much of the industrial world, central bankers are pushing up against the limits of what they can do to buttress growth. Yet those same low interest rates make it exceedingly cheap for governments to borrow money to finance bigger budget shortfalls.
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