Charles Hugh Smith: Global Grand Policy Failure

As noted more than a few occasions, governments around the globe could have chosen not to do it. In this context, they can’t just blame global forces for their policy failure.

From Of Two Minds:

"We are all Keynesians now," indeed. Keynesian policies have pushed the global economy into a financial black hole.

What we are experiencing is Grand Policy Failure on a global scale, a failure best understood by examining liquidity traps and the Keynesian plummet into Financial Black Holes.

All three Keynesian policies have been tried, and all three have failed completely. The massive "shovel-ready" fiscal stimulus caused a minor blip up in activity, but it did not spark any regeneration of borrowing and spending. All it did was enable further deleveraging as consumers and businesses struggled to pay down their crushing debt loads.

As for devaluing the currency, the Fed's policies devalued the U.S. dollar 32% from the early 2000s, and 17% from 2008. Rather than spark a boom of spending and investment, this massive devaluation sparked a dramatic loss of purchasing power which households experience as high inflation.

No nation ever prospered in the long-term by devaluing its currency. Devaluation is just another Keynesian "quick fix." Borrowing 40% of Federal spending didn't "fix" what's wrong with the economy? Then borrow 50%. That devaluation wasn't enough? Then takes the dollar down another 10%. These are the policies of debt-junkies, not legitimate long-term growth based on capital formation and productive investment.

http://www.oftwominds.com/blogaug11/liquidity-trap-8-11.html