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Posts Tagged ‘Government debt’

Economic troubles & the decline of social democracy

August 5, 2011 Comments off

The most surprising thing about the economic troubles around the world is that they are considered surprising. The economic story is actually quite simple — western governments around the world have been consistently spending more than they have, and just hoping that continued economic growth would save them. The very obvious problem with this approach is that when debt gets too high while you have an economic slowdown, then the government faces a budget crisis. Then you have Greece getting bailed out and America extending their government credit card from $14.3 to $17.7 trillion.

But that’s only the start. Bailing out the Greek government does not solve the underlying problem of excessive European debt. And going into more debt does not solve the underlying problem of excessive American debt. These problems are currently being delayed, but not solved.

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Our fiscal future

February 10, 2010 1 comment

The government has released an updated Intergenerational Report (IGR) which gives us a glimpse into our fiscal future. Too often economic decisions are made with a view to the short-term political cycle and not the long-term sustainability of the policy. The IGR is a useful tool to help us assess whether current policy is sustainable into the future. The short answer is “no”.

As the population ages and as people demand ever-more complex health services, government spending will continue to increase. This will result in sustained budget deficits, leading to growing government debt. While a small amount of government debt is manageable, the debt cannot increase forever. When the debt gets too big then the interest on the debt becomes unaffordable, and the government faces a financial crisis… with any number of potential bad outcomes.

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