Tuesday, January 26, 2010

Or maybe not

What were we saying? It turns out that we're still so worried about government debt that we might end up trashing the recovery before it gets started. Strange that markets were happy for banks to sell mortgages to the insolvent, but governments that have been democratic for two hundred years are regarded as risking default.

Anyway, back to the textbook - if consumer balance sheets over the world are in shreds, we will only get output if governments spend some money. It may be socialism (sic) but capitalism only works if people want to buy stuff.