Tuesday, May 18, 2010

The Politics of Debt

Public debt crises are always and everywhere a political phenomenon. They are consequences of political weakness, excessive expenditure and insufficient taxation, and failures to make decisions about unsustainable fiscal policies are political. They are not the result of profound economic processes. Niall Ferguson
The quote is from a recent presentation by Niall Ferguson to the Peterson Institute. Delivered in his usual smooth, intelligent, urbane and downright terrifying style. If you can't watch it all join him at 26 minutes and watch it to the end. The quote comes about the 37th minute as he's explaining the real causes of debt crises. The big takeaway: when your government's spending more on interest repayments than regular expenditures like health and education then default isn't too far away. He forecasts that the United States will reach the stage in the next six years when US government spending on debt interest and repayments will exceed its military expenditure. The definitive milestone marking the decline phase in America's history in Ferguson's take on things. Though it's nice to see from the recent BIS analyses (referred to recently) that Ireland will be far from the worst in terms of projected debt repayments to GDP ratios. It's my straw and I'm going to cling to it...

And for something a little less smooth but even more terrifying (and for brilliant use of Agitprop type graphics, images and music) see Meltup from the National Inflation Association. The big takeaway: America will response to the crisis Ferguson foresees by speeding up the dollar printing presses. Politicians again. The statistics 43 minutes into the video about current food price inflation in the USA are quite astounding - I had no idea.

Now, which one of my euro bank notes are the ones with the German serial numbers, hmmm...

1 comment:

  1. Great post (as usual!)... watched a bit of the Meltup video - looks like average public sector work pay compares favourably to private sector (much like Ireland) but the video says public sector wages went up last year and this year..in a time of high unemployment... ouch. Looking at the US from afar through the lens of that video and living here in Ireland perhaps we have a better understanding of the dire straits we are in. Another point I heard on and Economist podcast re Euro crisis - austerity is needed to bring down budget deficits, but equally if not more important is that Eurozone countries now take this opportunity to put in place the structural reforms that so many papers have been written about - breaking down uncompetitive practices, freeing up labour markets, making the public sector more efficient. I hope the EU doesn't waste this crisis and makes the changes we now have been needed for so long.

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