A triple-dip recession?

A decade of low interest rates and high-spending-high-borrowing government had to ended in a mighty bust. Are we headed towards a future of perpetual boom-and-bust cycles?

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    A television screen at a post on the floor of the New York Stock Exchange shows the decision on Fed interest rates on June 23. The Fed continues to keep interest rates near zero, but if this tactic doesn't spur the economy, it may take bigger steps, like printing more money.
    Richard Drew/AP/File
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The politicians think they have discovered the magic cure. It's called quantitative easing, or just plain printing money, but it's the same the world over. When the economy looks bad, create more of those greenbacks. Whip your interest rates down. Then suddenly, instead of being strapped for cash, everyone's wallowing in the stuff, and the low interest rates make it cheap to borrow for that new home, that new machine or factory, and indeed just to go on a shopping trip.

The trouble is that, before long, people begin to realise that this is all just funny money. As the spending boom goes on, shopkeepers, property sellers and equipment manufacturers all put up their prices, so the big spenders are no longer any better off. They're just deeper in debt. So then you dip down again, and off we go.

The financial crisis might have taught politicians that they can't overdo things quite so much. A decade and more of low interest rates, monetary incontinence and high-spending-high-borrowing government had to end in an almighty bust, and it did. Maybe the politicians and the economic authorities have grasped that much.

But as the talk turns to a double-dip recession, could they resist not administering just a little bit of this same medicine, hoping that this time the dose will be enough to cure, rather than kill, the patient?

The patient is still looking poorly. Business is not picking up very fast. There are fears that slashing the spending of an overspent, overborrowed government could add to the gloom. So the Bank of England is keeping interest rates down. But what happens if things stubbornly refuse to turn up? If there is indeed a double dip? The Bank can't lower interest rates much further, so it will come under political pressure to 'ease' the monetary quantities yet again. If you've read your Hayek or your Mises, you know exactly what that means. Another boom-bust cycle.

So it could be a triple-dip recession. You heard it here first. But why stop there? Once you start trying to manage these cycles Keynesian- style, you've had it. You're back in the age of boom and bust.

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