I have never seen any proof that austerity works in times of high debt loads. Greece went that route and it seems that the economy is destroyed and to what end? They still cannot pay backs their loans. Ireland also went to austerity and they seem to be improving but these policies seems to have done a lot of damage to the economy and people's lives in the meantime.
The US had bigger debt problems after the Second World War. What they did was build the interstate highway system. Their economy took off and the government collected a lot more in taxes and the debt problem was resolved.
Japan knew about this and when they got into financial trouble they did some building of infrastructure. However, they build a lot of bridges connecting a number of islands. The problem was that not many people lived on these islands so really they built bridges to nowhere. Their economy was not helped at all.
What we hear about today is the incredible congestion on roads in cities. Maybe our version of the US interstate system is to build public transportation, like subways to help our economy, relieve congestion and perhaps also pay off some of our debt if we can generate new tax revenue.
Another thing is that Governments should get on board with new ways of doing things. The young are left out of jobs but are coming up with ways of making money from Uber, to Airbnb to crowd sourcing. We should not stop innovation.
Also, we do need to understand that austerity measures do damage to an economy. When an economy has growth and some room to maneuver, then some austerity measures can be instituted as long as the economy is only damaged less than the growth rate so there is still some growth. This is how our Canadian Prime Minister Chretien handled our past heavy debt load.
So a government can slowly back off spending and repay debt if it can still allow for some growth. The problem with Greece was that the economy was heavily damaged and this does no one any good. I think that the bond holders should suffer also. The reason for interest on bonds is the possibility that the bonds will not be paid in full. I think that bond holders of Greece should suffer more losses than they already have.
I know that no one really talks about Greece defaulting on current bonds. However, when you extend the repayment date for bonds, this is in fact a default. There needs to be more help for Greece. There is no way that Greece can pay their current debt. The sooner this is admitted the sooner will we be able to come up with a way out of debt for Greece.
On my other blog I am today writing about Canadian Natural Resources (TSX-CNQ, NYSE-CNQ) ... continue...
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