Friday, April 13, 2012

The false stimulus of sacrificed pensions

Countries must do more to lower debt

As has been pointed out, the pension funds are empty. Principally because they have all been spent to lower the effective tax rate, and to forestall the onset of a negative savings rate. However the point should be made, given that Japan is always used as an example, that none of the Japanese believe that the government will be able to honour their pensions. The main effect of this is that the population saves all the harder, offsetting pension spending... In the case of the UK, lowering debt will cause such an increase in the effective tax rate that the division between rich and poor will be defined by your relationship with the state, and nothing to do with working at all, that tenuous link will start to be lost.

Posted by stillthinking @ 04:03 AM (1299 views)
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2 thoughts on “The false stimulus of sacrificed pensions

  • Japan is a bad example and mostly arises because of economics journalists’ bad understanding of Japan’s economy.

    Google ‘largest financial institution in the world’ and you will find the list populated by banks, denominated in dollars. Now google ‘Japan Post Bank’ and look at the wikkipedia entry. It is the largest financial institution in the world by assets.

    That’s what 35 years of weakly performing property assets does – it forces people to save and in a high earning economy, they save a lot. In fact more than anyone else in the world, on the back of the largest national cumulative trade surplus in history.

    Is Japan still a good example? Not in the US and UK context, no.

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  • Of course, bancruptcy is the fastest way to destroy debt and it is only governments that can by-pass bancruptcy law, taking money from the successful, with the use of force and hand it to those who screwed up and who should go bancrupt, actually adding to the debt pile.

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