The crisis central planners now face is that the one thing they need to do, raise interest rates, is the one thing they cannot do.

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OPINION: Our current economic success is a debt-fuelled Ponzi scheme where everyone has a stake in the fictional statements issued each month.

The party is going to end and it will not be pretty.

Since the Great Depression, Western economies have run a predictable course.

Good times coincided with government surpluses and high interest rates. Economic turbulence was met with low interest rates and budget deficits.

Cheap money stimulates investment and government spending was meant to make up for a fall in private economic activity.

When things got better the State cut back on its largesse and interest rates crept back up. It was an ad-hoc system that followed a standard Keynesian script.

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When the GFC hit, governments responded with textbook stuff. Money was borrowed, printed and spent.

By 2011 the worst of the crisis was behind us and had we kept to the script interest rates would have inched up and the deficits slowly reduced.

This didn’t happen. The policy makers and their political masters kept stimulating the economy long after economic growth had returned.

Whilst Bill English managed to get our books back into the black by 2016, a full six years after we’d moved out of recession, most of our trading partners remain in deficit territory.


h/t mark000

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