Goodbye Austerity, Hello Big Government Spending 

Never back a wild animal — or a central bank — into a corner.

government photoI learned the first half of that lesson when I was 8 years old. We had just moved from New Jersey to the wilds of southwestern Florida. My next-door buddy Jimmy had somehow managed to wrangle an armadillo out of its burrow.

A garbage can, with an old window screen across the top, served as a temporary “cage” until the armadillo could be released back into the scrubby pine forest bordering our little community. I remember putting my face up against the screen. The animal, with its leathery plated body, thick tapered tail and scaly head, was the cutest, most exotic thing I’d seen outside of a zoo.

That’s when our cute, docile armadillo — better known for digging in the dirt for worms and grubs — leapt straight at the screen, its big, sharp claws looming large in that instant before I jerked my head away.

A dumb 8-year-old learned his lesson.

Trapped animals aren’t predictable beasts, and, as the world is likely to find out, neither are central banks or their political handlers.

We can see hints of this just from looking at one of the rare things that Hillary Clinton and Donald Trump agree on: more and bigger (much bigger) infrastructure government spending.

Government Spending: Trains, Planes and Automobiles

One candidate wants to spend $275 billion on such projects. The other wants to put double that amount to work building roads, bridges, dams, tunnels, ports, sewer plants … you name it.

Never mind who’s right and who’s wrong. Never mind whether it’s affordable (it’s not), or whether it will reinvigorate the economy in a significant way (it won’t)…

Forget all that. Central bankers here and elsewhere tried lowering interest rates in the tried-and-true manner of decades past. Then came quantitative easing. Now comes various versions of “helicopter money” (except no one wants to call it helicopter money).

Big government spending is in. Austerity is out.

In the wake of Britain’s Brexit vote comes a call for big government spending, no less than from the think tank representing the nation’s 130,000 number crunchers: the Institute of Chartered Accountants in England and Wales. After noting the decline in infrastructure spending (from 3.4% of GDP in 2009 to 1.9% now), the group calls for massive renewed expenditures on schools, hospitals, housing and energy pipelines.

Wanted: Bigger Bazooka

Will such government spending come through? Yes. (Remember what I said about desperate central banks and their politicians?) As the Financial Times noted recently, the Bank of England “fired its bazooka,” but it turned out “to be more of a peashooter,” and therefore “infrastructure could be set for another moment in the sun as governments consider loosening the purse strings.”

The EU in recent years has been practically synonymous with the word “austerity.” The penny-pinching may be finally coming to an end though — again because the politicians’ backs are against the wall. It’s “growth at any cost” time. In Italy, the Renzi administration is desperate to shore up its weakened banking sector (and stay in power).

As the wonks at Foreign Policy note:

The Italian government has no choice but to push for an end to the EU’s commitment to fiscal austerity. Renzi’s government believes there is substantial support for such a shift in other European countries, above all in France, and it has recently been pushing for a much larger EU public spending initiative, directed primarily at infrastructure investment.

And then there’s Japan. Earlier this month, its parliament approved a $275 billion effort, with about a quarter of that borrowed money going into a new maglev bullet train, bigger seaports so the country can host a quintupling in cruise ship visitors over the next few years and a dramatic expansion of Japan’s major airports.

Will it work? It hasn’t before. Sometimes it’s hard to tell which we’ve seen more of over the last three decades — Rocky sequel movies or infrastructure programs aimed at jump-starting Japan’s lackluster economy.

But never mind. With this latest effort, they’ll try, try again — and be shocked, shocked (!) that it doesn’t seem to work (again).

It’s all about governments, businesses and consumers accumulating ever-larger mountains of debt (thanks to all those desperate central bankers and their equally desperate political enablers). As Jeff Opdyke and others here at The Sovereign Society have said before, it’s not a fix (unless you’re talking about the kind junkies need to feed their addictions).

Kind regards,

JL Yastine
Editorial Director

Government Spending

Government Spending