State support is vital in times of crisis econ.

[Kathleen]

Пожалуйста. помогите понять главную смысл статьи в нескольких предложениях. Нужно написать аннотацию, а я этот текст вообще не могу понять. Заранее спасибо всем, кто откликнется.

We are still managing our way laboriously through one major financial crisis and its economic consequences, but many argue that a new one is about to erupt. They assert that the coming financial storm, caused by excessive government borrowing and the emergence of “big government”, will result in threats to the solvency of the state and/or much higher inflation. Others assert that the biggest mistake we could make would be to shut down prematurely the only effective weapon we have to manage the current crisis and combat market failure, namely the balance sheet of the state, including that of the central bank. Is there any way to determine who is right?

Robert Skidelsky’s cogent perspectives in the Financial Times last week (“Economists clash on shifting sands”, June 11) emphasised that this debate, between New Classical Economists and New Keynesians, does not lend itself to dogged assertion with bogus scientific credentials. In fact, economic thinking through the ages has continuously addressed the same topics, such as wealth creation and distribution, property ownership, and the role of markets and government, but it waxes and wanes with circumstance and the political context of the time. Today, you do not have to be a socialist to believe in the stabilising force of the state in the economy, and you do not have to be a proponent of laisser faire to fear the financial consequences of unrestrained big government. But you have to have perspective.

The near doubling of US 10-year Treasury bond yields this year and the sharp rise in other government bond yields, in spite of quantitative easing, have crystallised the worry about a new financial crisis. Professor Niall Ferguson of Harvard University has argued that it vindicates the view that the US has mistakenly “adopted the fiscal policy of a world war to fight a recession”. Concerns about the limits of fiscal prudence have also caused credit rating agencies to review, or lower, the triple A status of several major economies, including the UK. However, there is no imminent state solvency crisis for most advanced countries and the lens through which such views are seen is both narrow and inappropriate for at least three reasons.

First, the increase in bond yields is consistent with just about every other development in equity, credit and commodity markets. The threat of a systemic financial crisis has receded, “green shoots” of recovery are all the rage and investors are putting risk back on the table, making government bonds the biggest casualty. Financial markets have simply been “normalising”, to a degree.

If we encounter further financial turbulence, for example, as loan losses mount in the wake of bankruptcies and defaults, or – perhaps more likely – if those green shoots fail to become a sustainable expansion, bond yields will probably fall again. As well they might, because a sustainable economic expansion involves continuous increases in spending on capital goods, construction and consumer durables. Since debt-financed spending has been put out to grass for the time being, this can only happen as debt burdens decline and employment and incomes start expanding again. This can hardly happen while higher private savings, unemployment and bankruptcies dominate the economic outlook.

Second, although large government bond issuance programmes are bound to entail price concessions (higher yields) and the occasional failed auction, there are plenty of buyers of government securities in a deep balance-sheet recession, including banks and central banks. The private sector’s spending and borrowing are in hibernation, and its financial position is swinging sharply into surplus (saving). The government’s growing indebtedness is simply the other side of this phenomenon and an essential way of stabilising the economy. One of John Maynard Keynes’ main insights was that a wounded economy will not bounce back on its own, possibly remaining for some time in a state of “underemployment equilibrium” unless rescued by some external intervention or shock.

Third, market information does not suggest any close relationship between bond yields and public debt. Japan has the highest debt-to-GDP ratio among advanced economies at over 200 per cent, but 10-year government yields are 1.5 per cent. In Australia, with a public debt-to-GDP ratio of below 15 per cent, bond yields are 5.5 per cent. The vast majority of triple A rated nations have ratios that lie between 50-150 per cent of GDP, but government bonds yields in all cases lie between 3.7 and 4.5 per cent. Clearly, factors other than state solvency fears determine the behaviour of bond yields, one of the most important being the anchoring effect of expected short-term interest rates – and these remain very low, despite recent and bizarre sentiment to the contrary.

The threat posed by soaring public debt in peace time cannot be treated lightly, even though much incredulity surrounds the risk of state insolvency, especially for sovereign states that issue their own currency. However, by the time all the counting is done, this banking crisis and Keynesian fiscal stimulus programmes are going to cost between 15 and 25 per cent of GDP in many advanced nations. If you think these costs are large, consider that the net present value of the coming surge in age-related public spending over the next 40 years is roughly 10-20 times as big. Consequently, rather than fret about the noise in government bond markets, we need urgently a political consensus for the public sector deleveraging in the years immediately ahead, and for what we expect of government and of markets over the longer-term. Lord Skidelsky said the Keynesian revolution was less a scientific victory than a triumph of good over bad judgment. Let us hope that we apply this equally to the state’s essential functions during times of crisis, as well as to its credibility in the years ahead.

[silly.wizard]

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[San-Sanych]

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