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Stimulus overload may be short-term gain for long-term pain, economists say
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By The Canadian Press
OTTAWA - Many economists are siding with Bank of Canada governor Mark Carney's contention that too much stimulus spending to fight the recession might be a bad thing.
The central banker is cautioning global governments and by implication Ottawa about overreacting to the recession, even though the downturn is as bad as anything since the Second World War.
With the world awash in hundreds of billions of dollars of government stimulus spending and central banks cutting interest rates to rock bottom and pouring billions into financial markets, Carney and a growing number of economists are starting to worry that too much medicine may eventually kill the patient.
The problem, say economists, is that by flooding the economy with public stimulus, governments may be exchanging short term gain for long term pain, pushing up inflation, widening deficits and setting the stage for sharply higher interest rates in future.
TD Bank chief economist Don Drummond says there's a fine line between just the right amount of stimulus and too much, a line few governments or central banks have successfully walked in the past.
Pumping too much public money into the system will have the unintended consequence of crowding out private sector activity, hiking inflation and perversely snuffing out the economic recovery governments are seeking to create, he says.
What's more, add other economists, doing more in haste risks wasting taxpayers' dollars that will do minimal good short-term but plenty of harm in the long-term.
Module body
By The Canadian Press
OTTAWA - Many economists are siding with Bank of Canada governor Mark Carney's contention that too much stimulus spending to fight the recession might be a bad thing.
The central banker is cautioning global governments and by implication Ottawa about overreacting to the recession, even though the downturn is as bad as anything since the Second World War.
With the world awash in hundreds of billions of dollars of government stimulus spending and central banks cutting interest rates to rock bottom and pouring billions into financial markets, Carney and a growing number of economists are starting to worry that too much medicine may eventually kill the patient.
The problem, say economists, is that by flooding the economy with public stimulus, governments may be exchanging short term gain for long term pain, pushing up inflation, widening deficits and setting the stage for sharply higher interest rates in future.
TD Bank chief economist Don Drummond says there's a fine line between just the right amount of stimulus and too much, a line few governments or central banks have successfully walked in the past.
Pumping too much public money into the system will have the unintended consequence of crowding out private sector activity, hiking inflation and perversely snuffing out the economic recovery governments are seeking to create, he says.
What's more, add other economists, doing more in haste risks wasting taxpayers' dollars that will do minimal good short-term but plenty of harm in the long-term.
