The Pigs and the Stupid

Niall Ferguson is a Glaswegian economic historian, who is the author of the book "The Ascent of Money". I bought the DVD (published in the US by PBS) for a friend, and recommended the book to another friend last night in Borders. She promptly bought it. If you were to choose between the two, choose the DVD, as the footage of Venice is breathtaking, and gives a visual sense of the sheer power of the Italian Mendici family, and its lasting legacy.

In his piece in the FT today, Mr Ferguson suggests that the crisis currently affecting Greece will soon reach America. A Libertarian friend of mine, whom I took for a walk to the Stanford dish, suggested, like Mr Ferguson does, that the multiplier effect of government spending is low, and therefore the effects of an economic stimulus are likely to be a waste of public money.

While it's very clear that the current US administration has inherited much of the current deficit (paid for by bonds bought by the Chinese), it's also clear that now the cash cow's run dry (China now expects to buy a token 5% of new issue, and threatens to liquidate existing holdings every time the Dalai Lama shows up in DC), America is planning some austerity measures of its own. By austerity I mean a freeze on "non-essential" spending for the next three years.

To answer Mr Ferguson's question: "But the key question is when that crisis will reach the last bastion of western power, on the other side of the Atlantic."

The answer is "NO", because an exogenous shock will see America through, like it did in the early 90s (with the Internet boom) and like it did in 2003 (with the housing boom). In this case, it will be out of the government's control. But it will happen.
Put your wallet away, Mr Obama.

Trust me.

PS As I've received a few emails about the title, I am not calling anybody a "pig" or "Stupid". These are, in fact, derogatory acronyms for countries asking for bailouts or about to require bailouts, and have been banned by the FT. To give you a clue, the G in Pig stands for Greece. Figure out the rest, or see the FT