The Structural Limits of Fiscal Policy - VP Thematic

  • The theoretical limit to excessive fiscal spending is inflation, but in practice it is politics.
  • Fiscal deficits and greater government involvement will be a feature, not a bug, in the coming decades as moral obligations (e.g. social security, national security) have locked us into heavy future spending.
  • Current global debt levels are high (but still below Bernholz thresholds), but wealth inequality and social fragmentation bring instability. Structurally, yields are biased higher until politicians intervene to keep real yields down (i.e. financial repression).
  • There are only 3 ways to finance debt: taxes, more debt or monetary financing. We review the US “New Deal”, Romania, Reaganomics, UK post-WWII, France post-WWII, and Canadian monetary financing.
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