“I find the idea of expansionary fiscal contraction in the context of the world in which we now live to be every bit as oxymoronic as it sounds,” Summers said at the Institute for New Economic Thinking conference held at Bretton Woods, New Hampshire. There are also concerns that the UK is looking down the barrel of a period of Stagflation – high inflation with high unemployment.
The UK coaliation government believe that tackling the budget deficit is a necessity to stop bond investors losing confidence in the country’s fiscal policy. This is what happened with Greece and Portugal. If the UK can improve its fiscal position maybe that would generate the confidence the economy needs to grow. Across the atlantic in the US they are watching very closely to see if an contractionary rather than expansionary policy will generate a recovery. Click here to see the article from the Daily Telelgraph.