Monday, 17 December 2012

Bring back the Keynes

 Very interesting Opinion piece in the FT on the serch for new solution to our economic woes.

The jist is that Keynes, having been on the scrap heap for 20 years or more, is now being dusted of across the pond by byLawrence Summers, the former Treasury secretary, Paul Krugman, the economist-columnist, and the US Federal Reserve chairman Ben Bernanke, came with the belief that short-term fiscal and monetary expansion was needed to offset the collapse of the housing market.

The issue is that caused of the recession were the very high levels of personal and public debt, which became apparent during the credit crunch; caused by under-capitalized banks. To resolve this people, governments and banks have to become credit worthy, stimulating demand artificially is likely to cause deeper long term problems, so it doesn't seem probable that Keynes will have the answer. The one area if wriggle room is in the private sector, where large corporates are sitting on cash, unlocking these liquid assets may provide part of the answer.

So no need to bring back the Keynes. 

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