Reply #2: Keynes said [View All]

[RM33]

Keynes said during good times the government should run surpluses. Basically, the thinking was the government has savings, a war chest if you will. So when the recession hits, you spend your money, and run up the debt.

The US government has been running up massive debt during peace time. Now that the recession hit, revenues are just not there. So they have to run up a bigger debt to do Keynsians economics. But the Bond vigilanties are not having it. So the discipline of the market is forcing governments around the world to reign in debt.

If the Federal government and states government had budget surpluses like Keynes recommended, then government would have had a lot of elbow room to run up the debt. But to start from a hole, and to go deeper into debt, it a major problem.

The market is impatient with governments and their sky high debt. Rating agencies have been threatening to downgraded government ratings. Even the US triple A rating might be downgraded. And even if these agencies do not downgrad government ratings, the market will do it for them as they move money out of debt into other investments.