James Montier: The 'Austerians' will destroy the recovery and usher in deflation

5: Worldwide expansionary policy shares the burdens and the benefits of recovery.

6: The Great Depression did eventually end.

Montier bolds out three and five as the most relevant for today's fiscal policy makers.

A longer Great Depression

In terms of cutting back too soon, he points to when the US came off the Gold Standard during the Great Depression. It seemed to give an apparent kick start to the US economy which grew in real terms by 11%, 9% and 13% between 1934 -36 respectively.

The authorities were lulled into thinking that all was well with the economy and in 1937 the fiscal deficit was cut by 2.5% while monetary policy was also tightened. The effect, however,  was to prolong the Great Depression by another two years according to Romer.

The 'Austerians' have gained a lot more traction in the UK and Europe than they have in the US, Montier notes where Bernanke 'gets' the risks of deflation better than his European counterparts.

Japan's fiscal mistakes

Japan is the best example from recent history for those who would cut deficits fast and agressively, he says.

'Japan provides us with another example of the unerring ability of policy makers to snatch recession from the jaws of recovery. Time and time again in the post bubble period, the Japanese policy makers have beaten an incipient recovery over the head with overly aggressive tightening measures.'