Japan Steps Out - The New York Times
We forget that money is a good just like any other. Saying that no one wants to buy things (GDP being the rate of such purchases) is the same as saying people would rather keep the money (or, equivalently, pay down debt). As a result, there is an exorbitant demand for money. Similarly, when long-term government interest rates (for a nation that can print its own currency no less) remain depressed in the face of a recession, there is clearly an exorbitant demand for government debt. The two come together in the fact that real long-term rates on US Treasury securities remain negative on maturities out to 2029; the global markets are paying the US government to spend their money for them, to the tune of trillions of dollars .
The irony is why US currency and debt are so highly valued: because the economy is in the tank. The worse a job the Congress does in reviving the economy, the more investors will want to give the US their money, hurting the economy further. This is not a circumstance offered to Greece, the latest bugaboo among the counter-inflationistas. This is exactly the time to use this capital (via inflation and borrowing) to stoke the economy, achieving an equally ironic outcome: a weaker currency and increased government debt increases investor confidence. Japan is beginning to demonstrate this.
The Hayekian view has the benefit of microeconomic familiarity: families don’t dig deeper when facing financial hardship. But the Keynesian view reflects a macroeconomic view suitable to a nation: if everyone is saving, who will spend? The need for this “lender, spender, and saver of last resort,” a kind of fiscal “countervailing power” means that folksy appeals to ‘sensible’ policy, favored by parties of the Tea variety, are disastrous when applied to vast open economies.