Debt-Fueled Spending Programs are "Poison"
Nation after nation, beginning with the US and on down the line, has blasted an ocean of money at broken financial systems. Today, Anthony Crescenzi, an investor at Pimco, the world’s largest bond fund, has pointed out that this government “tool” has become blunted as it predictably would. The balance sheets of entire nations, not simply banks, have run dry.
“’Time, devaluations, and debt restructurings might be the only way out for many nations,’ Crescenzi wrote in an e-mailed note titled ‘Keynesian Endpoint’ that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now ‘being seen as a magic elixir that has morphed into poison.’
“A debt crisis that began in Greece is threatening to slow global economic growth, pushing the euro down 17 percent this year as governments across Europe cut spending. Spain lost its AAA credit grade at Fitch Ratings, and Moody’s Investors Service said the U.S.’s top ranking will come under pressure unless the government reduces budget deficits.
“In the U.S., public borrowings passed $13 trillion for the first time this month, according to the Treasury Department. The debt will be larger than U.S. gross domestic product, now $14.2 trillion annually, in 2012, according to the International Monetary Fund.”
None of this is news to Daily Reckoning readers. It’s commonplace to discuss failures like the US’ $1.6 trillion budget deficit or the euro’s newest low since 2006. Still, policy makers masquerading as heroes seem disinclined to let the historically dependable tools of “time, devaluations, and debt restructurings” heal these wounds. You can visit the Bloomberg coverage of Pimco seeing the “Keynesian endpoint” in devaluations for more details.