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Some Good News About the Economy

April 25, 2012 | Comments: 0 | Views: 241

There has been a trend for many governments around the world to augment national budgetary resources by incurring debt. This debt is raised through deficit budgets supplemented by quantitative easing, bond sales etc. This had led gradually to an accumulation of vast national debts. Some persons worry that this is borrowing from the future and that this practice will eventually compromise the future of their grandchildren and future generations. However they need not worry. There is good emerging news on this front.

The fact that future of grandchildren would be compromised is proving to be one great myth. The debt incurring governments have not compromised the future of grandchildren. The truth of the matter is that they have compromised the present or just our futures- yours and mine. That future is already here as proven by rising unemployment and falling growth rates around the world. Athens, Portugal, Spain and Rome are leading the trend. Other economies appear to be following. Athens and Rome are leading the trend as they have for over two thousand years of human civilization.

What are the options for a country that cannot borrow any further? The only way out is perhaps monetary/quantitative easing or deficit monetization. This means printing more money without the basis of goods and services to back it. What is the result of such monetary easing? It simply means that existing goods and services that are available in a nation become more expensive i.e. there is inflation. In real terms it means that the government is now borrowing from citizens because wealth of citizens shrinks with inflation while governments have more money in their hands since they control the money printing press. Unlike the regular tax, this inflation led borrowing or automatic tax is across the board for all citizens - poor and the rich. It is for this reason that some have said in the past that we need not worry about national debt - we owe it to ourselves. Nevertheless it hurts when payback time arrives. Why then is Greece and Spain not resorting to monetary easing and instead forcing its citizens out on the street through austerity measures? The reason is that Greece and Spain have joined the Euro and the therefore do not control the printing press for quantitative easing. Greece will resort to such monetary easing if and when it is forced out of the Euro. It appears to be more a question of 'when' rather than an 'if'.

Is there anything that citizens of any nation can do to avoid such scenarios? The only one is to vote such governments into power that outlaw government debt and deficits i.e. countries would have to learn to live within their means and citizens would have to learn that to make economies sustainable. Debt has to be avoided not just in their own personal budgets but also national ones. However, this can only be a prescription for the distant future. The debt that has been incurred in the past has to be dealt with.

Why should a democratic government that works for the welfare of its citizens create such enormous debts? After all it can command the services of the best economists in the country to explain facts. The reason is that democratic governments have another worry besides the welfare of its citizens. They have to worry about winning elections and the future of the political party. Measures that cause some pain now for future benefits just do not help in this direction. In the meantime the good news is that national debts have not compromised the future of our grandchildren. That future is already here. Learning from this experience, countries and individuals would have developed wiser debt free practices by the time the grandchildren grow up.

Dr. Ashok Malhotra holds a doctoral degree in engineering from the University of British Columbia, Canada.

Source: EzineArticles
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