The revelation of some sloppy analysis by austerity academics Reinhart and Rogoff has thrown open the old division between the US administration and Europe over the wisdom of front-loaded spending cuts.
The G20 discussion last weekend apparently focused more on this difference in attitude than on Japan’s leap-frog to top stimulus nation and the concomitant devaluation of the yen. Events in Japan may yet settle the debate as, if the Abe government succeeds in borrowing its way out of debt, the policy world will be turned upside down. Carmen Reinhart and Ken Rogoff’s book This Time is Different famously concluded high levels of government debt are a cause of significantly weaker GDP growth. By implication they suggested a tipping point could be reached in which an economy falls into...
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