The latest country to invoke panic spending is South Korea. Its economy is faltering.
What is needed? A bigger deficit, of course.
Then what? More central bank inflation. The central bank is expected to cut interest rates on short-term government bonds next month.
All over the world, East and West, the politicians are desperate. So are central bankers. The system is coming unglued, but all that the politicians think they can do is increase spending and borrow more money. They want central banks to supply this money.
The economies are staggering. The recoveries should be in self-sustaining mode by now, but they aren’t. Politicians are trying to keep their national economies from sagging. But why are they sagging? Because Keynesianism bleeds capital formation. Every time an investor buys a government IOU, he does not invest in capital formation.
We are in a debt spiral. The government deficits keep getting larger. This requires more purchases of IOUs, because of the roll-over factor. These debts are never paid off. They are always rolled over. But the new deficits increase the size of the debt that must be rolled over. So, new deficits get less bang for the buck — or won, in the case of South Korea.
The blood-letting from the private capital markets guarantees slower economic growth in the future. The appetite for more debt is now insatiable in legislatures around the world. They cannot stop. There is no exit strategy.