Larry's Keynesian experiment

I used to describe the difference between econometrics and statistics by saying that the government didn't let economists run experiments on the economy, so we had to learn how to interpret non-experimental data. But this seems to be changing. Now that Prof. Summers' recovery is behind schedule, Niall Ferguson tells us what to watch for:

Borrowing is forecast to be $1,840bn – equivalent to around half of all federal outlays and 13 per cent of GDP. A deficit this size has not been seen in the US since the second world war. ... Even if the White House’s over-optimistic growth forecasts are correct, that will still take the gross federal debt above 100 per cent of GDP by 2017. And this ignores the vast off-balance-sheet liabilities of the Medicare and Social Security systems. ...

...“The only thing that might drive up interest rates,” [Paul Krugman] acknowledged during our debate, “is that people may grow dubious about the financial solvency of governments.” Might? May? The fact is that people – not least the Chinese government – are already distinctly dubious. They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall.