Inside investment: Flip-flopping to double-dip?
Ultimately, the deficit must be repaid. But changing demographics and larger savings pools suggest relatively high levels of government indebtedness might be sustainable in the short and medium term. The bigger risk is that austerity plunges a credit-constrained world into a nasty double-dip recession.
People crave clear narratives. The first series of NBC’s TV show Heroes was showered with Emmys, Golden Globes and Baftas. It could be summed up in six words: “Save the cheerleader, save the world.” On April 2 2009 the G20 communiqué gifted to markets another simple narrative. It promised among other things: “to restore confidence, growth and jobs”, “repair the financial system” and “an unprecedented and concerted fiscal expansion”. This helped the global economy heal after the great recession and equity markets to rally faster than at any time since the 1930s.
The final series of Heroes, which was canned in May, was rather more confusing. It was populated by strange carny-folk who looked like extras in a Nick Cave video directed by Terry Gilliam. The latest outpourings from the G20 are similarly odd. Its last press release went out of its way to praise “the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions”. This is a remarkable policy flip-flop in the space of 14 months.
Governments are seemingly in thrall to bond vigilantes and FX traders. Greece’s sovereign debt crisis and the euro’s moment of existential angst have prompted some to reach for the fiscal hair shirt.