Who is at risk from premature austerity? | The Economist

Who is at risk from premature austerity?

Some countries are tightening too far, too soon

THE BUDGET deficits of the world's governments will add up to about 8.5% of global GDP this year, according to new projections by the IMF. That amounts to well over $7trn of additional red ink. Remarkably, it may not be enough.

Many economists of a Keynesian bent are haunted by the aftermath of the global financial crisis, when recovery was enfeebled by a premature turn to fiscal caution. Back then, economists fretted about spikes in interest rates and the corrosive effect of overborrowing. Now they view low rates as a fact of life and worry about the scarring effect of underspending. “With interest rates at historic lows, the smartest thing we can do is act big,” said Janet Yellen, America's new treasury secretary.

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