This Is New: Governments Ramp Up Borrowing IN ANTICIPATION Of A Slowdown

The business cycle has its stages, and they’re usually both predictable and logical. For example, governments tend to generate a lot of tax revenue late in an expansion as more people get jobs and start paying income taxes and rising stock prices generate big capital gains. Meanwhile, less has to be spent on social safety net programs because everyone is working. Combine higher tax revenues with lower spending and you get shrinking deficits.

But not this time. Government borrowing soared around the world in 2018, even as economic growth, employment and stock prices peaked. Why the change? Well, apparently governments have decided – for the first time since the inception of the business cycle – to preemptively attack the next recession.

The US, as everyone by now knows, has returned to crisis-era trillion dollar deficits even as the unemployment rate hovers around 4% and stock prices hit records. That’s historically unusual to put it mildly. But it pales next to what’s happening in China. From Doug Noland’s Credit Bubble Bulletin:

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