currency, inflation, monetary-policy, money-supplyI think fiscal spending through printing money while also keeping inflation in check will stimulate the economy. Printing money will only be problematic if it leads to inflation. Also there should be a mechanism to “mop” out the extra money in circulation when inflation rises head. Also extra money supply will lead to currency devaluation thus increase exports to help the cause. As I see it the biggest problem with a budget deficit is if it is financed through debt. Debt is not the only means a government can raise money to finance a budget deficit.
So is austerity or a balanced budget the best thing in bad times?
Fiscal policy ought NOT to be procyclical, so the answer to your question is no. The monetary financing of public deficits is also forbidden within the European Union.
BTW see the many op-eds by Paul Krugman in the New York Times on this very issue.
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