Thursday, February 18, 2010

One for the deficit doomsters

How to walk the fiscal tightrope that lies before us

The Wolf argues that the only way to prevent growing fiscal deficits would have been not to let credit booms and asset bubbles happen. The worst deficits are in countries that had the biggest bubbles. Once those bubbles burst everything else followed - the private sector had to deleverage (save more). And the mirror image of private saving is government fiscal deficits. (The domestic private sector cannot increase savings unless the country starts running a current account surplus (unlikely) or government spends more than its tax revenue.) MW says that balancing budgets now would lead to depression and that the benefits of higher output today (resulting from govt spending) exceed the costs of debt service tomorrow, but says there are long-term problems caused mainly by ageing.

Posted by icarus @ 03:52 PM (943 views)
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3 thoughts on “One for the deficit doomsters

  • He doesn’t say much about what governments spend the money on. Instead of using it to revive the productive sector they have used it to bandage up the financial sector.

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  • This is an interesting point.. I have no idea whether its true or not. It does sound like Gordon.

    It’s actually much worse than reported because there is a HUGE backlog of income tax refunds that were due to be repaid on 31st January but haven’t been paid yet (listen to the recorded message on HMRC’s refund helpline). This is a massive unwinding of Brown’s ‘stealth tax’ that he introduced in 1999 when he started collecting Income tax IN ADVANCE. It all now has to be repaid for 2008/09 when incomes started falling.

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  • fighting inside tv studio

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