The Growing Chorus for Fiscal Stimulus

Central bankers and monetary adherents the world over are united in the common grouse that fiscal policy is lacking.  Grander programs of direct stimulation are needed, they grumble.  Monetary policy alone won’t cut the mustard, they gripe.


1-global debtGlobal debt-to-GDP ratios (excl. financial debt). Obviously, it is not enough. More debt is needed, so we may “stimulate” ourselves back to prosperity.


Hardly a week goes by where the monetary side of the house isn’t heaving grievances at the fiscal side of the house.  The government spenders aren’t doing their part to boost the GDP, proclaim the money printers.  Greater outlays and ‘structural reforms’ are needed to spur aggregate demand, they moan.

For example, last month, just prior to the G20 gala, the Organization for Economic Cooperation and Development (OECD) asserted that “Getting back to healthy and inclusive growth calls for urgent policy response, drawing on monetary, fiscal, and structural policies working together.”

The OECD report also stated that “The case for structural reforms, combined with supporting demand policies, remains strong to sustainably lift productivity and the job creation.”


4295203312_1ec36291bc_bThe Chateau de la Muette in Paris – this magnificent building that once housed members of France’s nobility nowadays ironically serves as the headquarters of the socialistic central planning bureaucracy known as the OECD. This parasitic carbuncle is high up on the list of globalist institutions that must be considered an extreme threat to economic freedom and progress.

Photo via


Several weeks later, on March 10, European Central Bank President Mario Draghi offered a similar refrain.  At the ECB press conference Draghi remarked that “all [Eurozone] countries should strive for a more growth-friendly composition of fiscal policies.

Then, wouldn’t you know it, former Fed Chairman Ben Bernanke also added his alto vocals to the chorus.  Last week, in his Brookings Institution blog, he wrote:


“There are signs that monetary policy in the United States and other industrial countries is reaching its limits, which makes it even more important that the collective response to a slowdown involve other policies—particularly fiscal policy.”


Self-Financing Deficits

Fiscal policy and structural reforms, if you were unclear on this point, is policy parlance for greater deficit spending.  This, in short, means using credit cards to fund government expenditures.

According to the central bankers, their issuance of cheap credit keeps getting log-jammed at commercial banks.  They want the government to unclog the jam. They want greater deficit spending to pump money into the economy via road and bridge projects, bullet trains, football coliseums, and vast concrete waterways.

If that doesn’t cut it, outright helicopter money drops, such as direct checks to the public from the Treasury, would be the prescribed fix. The logic behind the calls for fiscal stimulus is quite simple.  By borrowing from the future, and spending today, the government should be able to boost GDP growth.  Of course, this also increases public debt levels.

But don’t worry say the economic planners – echoing Dick Cheney – deficits don’t matter.  You can have your cake and you can eat it too.  A sustainable lift in growth, claim the experts, would also allow governments to benefit from higher tax revenues.  What’s more, these higher tax revenues will then be used to reduce deficits and debt.

Do you see how this unclever logic works?  Somehow, the deficits would be self-financing.  Somehow, the government will be able to spend its way to economic prosperity.


Deficit Spending is Not the Answer

Indeed, this sounds like a great policy strategy…if only it were true.  Unfortunately, there aren’t any examples we are aware of where increases in government debt have produced an economic boom that allowed the government to grow its way out of debt.  The debt never goes away; rather, it accumulates and is ultimately repudiated through default or inflation.

Still the mad monetary policy zealots believe more deficit spending will make the economy whole again.  They claim government spending has been too austere.  Yet the idea that fiscal policy has been lacking is absurd.

Here in the United States the national debt has topped $19 trillion.  That’s about double what the debt was 10-years ago.  For the 2016 fiscal year alone, the projected deficit is $616 billion.  While this is down from the trillion dollar annual deficits run between 2009 and 2012, at 3.3 percent of estimated GDP, it is hardly austere.


2-Federal DebtbergThe federal debtberg. Ronald Reagan’s deficits were once considered obscene. Soon one will need a microscope to even see them on this chart. Of course, deficits don’t matter – until they do – click to enlarge.


Similarly, many nations of the European Union are running deficits that are extremely reckless.  For instance, the stability growth pact rules of the EU require countries to limit their deficit spending to 3 percent of GDP.  According to Bloomberg, five of the 28 EU countries are expected to violate this rule this year and three more will be right at the threshold.

Certainly, this is down from the 22 counties in violation in 2010.  But, nonetheless, deficit spending is still running rampant.  Just ask Japan.  Their 2016 deficit is 6 percent of GDP.

The point is, central bankers are eager to share the blame for their failed policies.  Calls for greater deficit spending ate thought to help distract from their ineptitude. Nonetheless, it is complete gibberish…deficit spending is not the answer.

What happened to sound money, balanced budgets, paying as you go, and saving for a rainy day? These sensible ideas went out of style three generations ago.  We suspect they will make a comeback at some point…whether the economic planners want them to or not.


Charts by RBS/BIS, St. Louis Fed


Chart and image captions by PT


M N. Gordon is the editor and publisher of the Economic Prism.



Emigrate While You Can... Learn More



Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!


Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


3 Responses to “Deficit Spending is Not the Answer”

  • HitTheFan:

    Oh dear.
    Woods is some kind of MMT- Marxist hybrid.
    The level of debt simply aren’t high enough, we must need another….$100 trillion, yes, a nice round number.
    That’ll sort matters out, even better if govt is dishing it out too, they know best after all, they can make everything nice, fluffy and fair.
    First troll I’ve read on Acting Man.
    Wonder how long he’ll last.

    • woodsbp:

      HTD – I rarely reply to comments such as your’s – other than to acknowledge them. Your comments are so noted.

      So, “How long will I last?” A while yet I reckon. I actually enjoy reading the principle commentaries here – even if I disagree with the manner in which they critique some issues, or they contain intemperate language, or they make derogatory comments about living or deceased persons. They’re, well – different.


  • woodsbp:

    “Deficit Spending is Not the Answer.” Depends on what your question is.

    What might be your proposals for state spending (of tax revenues) that would provide a pay-as-you-go outcome? And it should be noted that government ministers do not authorize budget spends – unless someones are whinging at them, with begging bowls outstretched – like, “Please minister, give us some more!” So who are those someones then? Big business probably tops the list of government sponsored financial boondoggles – by a long shot. And what amount of potential tax revenue is forgone in all those various subsidies, write-offs and other tax avoidance wheezes?

    Pay-as-you-go state spending will only succeed if a country consistently exports more (in value) than it imports. It always has another country’s surplus to fund its spending. We know that this is a problem.

    Consider that a government gifts 100 units of its currency – then how much of this will be spend in-country, and how much will be spent out-country? Can you assume that no consumption expenditures will leak away on imports? I doubt it. Or be side-tracked into savings accounts? Probably. Can you assume that each individual consumer’s Marginal Propensity to Consume is 1.00? I doubt it; though the less well-off do exhibit higher MPC than the wealthy. Such disparities (in population and consumption) have significant consequences for overall consumption expenditures. Basically, if you peg the incomes of the majority – you automatically peg your aggregate economic activity, hence your tax revenues. Zero economic rates-of-growth are a very nasty matter indeed.

    In modern, globalized economies the only way to achieve “positive” economic rates-of-growth is to borrow (either internally or externally) and/or to create fiat credit (and continually roll-up the debt). [And its not the helicopter – its the computer keyboard.] There is no other way, or at least none that I am aware of that would be acceptable to any stripe of politician, red, green, blue, yellow – or whatever colour you prefer yourself.

    Your dart throwing appears to be quite good – you’re hitting the Bullseye OK: its just the wrong target!

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 5-cotmmrangegc03Ganging Up on Gold
      So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
  • gold_bullionGold Sector Correction – Where Do Things Stand?
      Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit.   Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India   The commitments of...
  • wryAustralian property bubble on a scale like no other
      Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:   Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:    the record run up in commodity prices and subsequent correction;  the associated...
  • urban_ii_croppedPope Francis: Traitor to Western Civilization
      Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis.  At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”*   Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
  • 9-market-internalsBubble Dissection
      The Long Term Outlook for the Asset Bubble Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market's potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” - we highly recommend reading it), he presents inter alia the following eye-popping...
  • andy-duncan-and-claudio-grassA Looming Banking Crisis – Is a Perfect Storm About to Hit?
      Andy Duncan Interviews Claudio Grass Andy Duncan of has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove.   Andy Duncan of (left) and Claudio Grass of Global Gold (right)   Andy Duncan: How do you see the...
  • spankinggoodtimeUS Stock Market - a Spanking May be on its Way
      Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.   Time for some old-fashioned...
  • fischersDoomed to Failure
      Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years.  What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.   As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
  • state_police_980_600_s_c1_t_c_0_0_1Are the Deep State’s Drones Coming for You?
      What’s Aleppo?   Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan   The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP   DELRAY BEACH, Florida – Biggest foreign policy blunder...
  • larry-1Meet Your New Stimulus Allocation Czar
      March Towards Midnight The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.   Tic-toc, tic-toc...   As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of...
  • speculatorInterview with Doug Casey
      Natalie Vein of BFI speaks with Doug Casey   Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the  parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
  • walmart-st-augustine-flaEvacuate or Die...
      Escaping the Hurricane BALTIMORE – Last week, we got a peek at the End of the World. As Hurricane Matthew approached the coast of Florida, a panic set in. Gas stations ran out of fuel. Stores ran out of food. Banks ran out of cash.   A satellite image of hurricane Matthew taken on October 4. He didn't look very friendly. Image via   “Evacuate or die,” we were told. Not wanting to do either, we rented a car and drove to Maryland. “We’ll just...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank




Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!