LONDON -- These are difficult and dangerous days for economic forecasters and financial experts. As usual they are deeply divided on the fate of the world economy. On the one hand, the giant American economy is showing faint signs of recovering its nerve as the last wreckage of the dotcom bubble is cleared away. On the other hand, there are some ominous trends in most of the advanced economies that cannot be allowed to continue, as they could bring all recovery to a juddering halt.
The most obvious of these trends is the worldwide splurge in government borrowing. Some investors have been surprised by the sudden fall in government bond prices, especially for U.S. Treasury bonds. But there shouldn't be anything surprising about that. Governments in most of the bigger economies have been running huge deficits.
Borrowing money by issuing ever greater volumes of paper is the least painful way of bridging the resultant gap. Governments in democracies always go on borrowing until they can raise no more that way. They turn to higher taxation only as a last resort, since raising taxes is the quickest way to lose votes.