September 25, 2007

Keynes was wrong

You can't just spend your way out of a recession. That was proven conclusively by Japan, which tried to do exactly that. Of course the Japanese were able to test it relatively safely because they had a huge savings rate, so their public debt is held internally. Much of the US public debt is already in foreign hands. The effect of creating more public debt is now a weakening of the dollar, because the additional money has to go oversees. So in the US's case, it's not really an option.

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