The mother of all gambles
Best case scenario: it might just work. Worst case: the stimulus flops and the economy stagnates with a huge overhang of debt
Keynes was a great man, but he wrote nearly 70 years ago. In his day, there were fixed exchange rates. We still had a massive manufacturing base. There were no credit cards or debit cards. There were no real international financial markets; traders couldn't dump your bonds or your currency at the touch of a button.
It was a different world. It made sense, then, for governments to spend on heavy infrastructure products to stimulate the economy. Nowadays, it just means more debt, leading to higher borrowing costs. The benefits are doubtful. Ask the Japanese. They ended up with national debt at 180% of national GDP, and 15 years of economic stagnation. They had simply followed Keynes' ideas.
Today, any stimulus – the pumping of more money into the economy – will be judged by the international markets. Currency traders have already passed judgment by dumping sterling against the dollar. One pound sterling is now lower than $1.5. That's because our government has basically tried to print money to get us out of trouble....
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