posted on Aug, 19 2010 @ 09:32 PM
Talking about debt (of our country)
The only point of having a surplus is to that we are able to run up a manageable debt whenever a recession hits. The government debt used to stimulate
the economy keeps people in jobs, helps the economy bottom-out in a way that's higher and softer, rather than crashing through the floor, and allows
for quicker recovery. The problem with trying to recover this debt too quickly , partly through increased taxes, but mainly through cutting services
(ergo) jobs, is that you pull money out of the economy, stop people spending and make the recession worse. If anything we are probably going into
financial austerity too early. Watch Europe and the US. They've been running budget deficits consistently for years, and its gotten to the point
where, now, when they really do need to dip into deficit, the debt risks becoming unmanageable.
The difficulty with all of this is that people tend to think of sovereign debt in the same way they think of personal debt. But the role of government
is not to manage the budget, but also to manage the economy. If you focus too much on the budget bottom line the bigger picture goes out the _
Government's are in a much better place to manage debt, since the long term bond rate is lower (because sovereign risk is lower) than
private/commercial interest rates.
Long story short, government debt, handled correctly, is nothing to be scared of, and certainly not at our 6% of GDP. Much of the time its better than
the alternative. When the liberal party carp on about the need to slash public debt quickly, just ask yourself, who benefits and who loses?
For a sovereign debt 101 crash course
[edit on 19-8-2010 by undinism]