Fiscal Follies
The fiscal stimulus measures widely implemented during the 2008-09 global recession helped prevent the Great Recession from turning into another Great Depression in 2010. But the abrupt shift in many advanced countries to front-loaded fiscal austerity will increase the risk in 2011 that a double-dip recession could lead to disorderly sovereign and private-sector defaults.
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NEW YORK – The fiscal stimulus that most advanced economies and emerging markets implemented during the 2008-2009 global recession – together with monetary easing and the backstopping of the financial system – prevented the Great Recession from turning into another Great Depression in 2010. At a time when every component of private demand was collapsing, the boost from higher government spending and lower taxes stopped the global economy’s free-fall and created the basis for recovery.