Tuesday, January 10, 2017

Massive debt lowers growth potential

Fatas and Summers

Abstract: The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.

Fatas and Summers are doing the hidden agenda here. In so many words they simply sat that massive government debt reduces growth potential. They can make up stories about the mechanism all they want, but it is sufficient to look at the sudden, additional 100 billion/yr in interest payments we now have to make in the Swamp since Trump was elected.

As near as I can tell, hey plan to push the helicopter up in time and defeat pure cash. Millennials will be screwed,

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