Criticising the Fiscal Stimulus

Last week the Governor of the Bank of England voiced his (legitimate) concerns over the scale of the fiscal stimulus being applied to the UK economy. In today’s papers Stephen King writing in the Independent hints that quantitative easing might undermine the financial markets ability to provide an early warning system of returning inflation.

“The enthusiasm for Keynesian fiscal expansion is waning in the light of horrendously large budget deficits, whether or not they are funded via central bank purchases of government bonds. It’s all very well having more or less every government in the world borrowing more, but where are the creditors?”

And Larry Elliot in the Guardian pours scorn on the idea that the extra government spending will do much to enhance the government’s green credentials.

Roger Bootle and his team at Capital Economics are predicting that UK government borrowing could total £1 trillion over the next five years taking net government debt to 100% of GDP. He explain why in this article in the Telegraph.

“The ultimate objection to fiscal stimulus packages is that they endanger the solvency of the state, thereby giving rise to fears of default. Indeed, if such a prospect is realistic then the stimulus package may not work. We are not yet at that point in the UK – but nor are we a million miles away from it.”