"Cameron may drown in his clear blue water"
With the collapse of their poll lead, the Tories have reverted to type and adopted a thoroughly bad economic policy
Broadly speaking, Kaletsky is arguing that recessions are not a good time to put up taxes, because that risks making the recession worse. Instead it is a good time for governments to borrow to invest. Governments should be trying to counteract the fickle emotions of the markets, not running with them. A disasterous counter-cyclical approach was what originally destroyed much of Britain's industrial capacity in the early 1980s. Trust is central:
At present investors and savers seem to trust nothing except bits of paper signed by governments, be they dollar bills, bonds or banks with government guarantees. At some point the world's savers, investors and bankers will presumably decide that assets of real economic value, such as houses, oil wells or shares in commercial enterprises are better stores of wealth than paper signed by governments. But when this happens the financial crisis will, ipso facto, be over, and inflation not deflation will again be the main threat.
That will be the time to hear from advocates of fiscal prudence - but until then the right policy will be to borrow and spend.