European American debt dilemma
Michael Boskin
The rich countries of Europe and America, the crown jewels of the capitalist democracies, now drowning in deficits and debt, because of the bloated welfare states is now established in the place (in Europe), or close to the robustness (in the U.S.). While Europe struggles to try to prevent financial contagion from spreading, and the struggles of America in an attempt to reduce their standard, the levels of serious debt are threatening the living standards in the future and working to stress the political institutions of internal and external. And now threaten the rating agencies further reduce classifications; and others see potential disintegration of the euro area and / or the demise of the dollar as a reserve currency worldwide at the end.
According to estimates by economists Kenneth Rogoff and Carmen Reinhart, the ratio of public debt / GDP by 90 per cent associated with diminished growth expectations too. In Greece the ratio of debt exceeded 120 percent, and Italy's 100 per cent, and in the United States, 74 per cent, up from 40 percent a few years ago, which is rapidly approaching 90 per cent. The IMF estimates indicate that the ten-point increase in the debt ratio is working to reduce economic growth by 0.2 percentage points. This means that the increase by 40 to 50 per cent of gross domestic product growth threatens to cut in the long term by half in parts of Western Europe, and by one-third of America and is a devastating decline in the gains achieved in standards of living for a generation.
Worse, that the burden of bank losses, which will be circulated to the community sooner or later, as well as the costs of retirement programs and public health is funded, often overestimate the true value in the figures of official debt. Moreover, the forms of funding controversial problems in some sub-national governments, for example in the United States and Spain, will impose pressure on central governments to demand financial aid.
In Europe, eager voters financially responsible in the countries such as Germany and the Netherlands to block the government bailouts, banks, and bondholders. As U.S. voters, it is known to be historically they prefer smaller government and lower taxes compared to European preferences (or at least tolerated him). If we add the continuing anger about the bailouts, and increased spending, even the Democrats in America have traditionally lavish party in the United States finally talking about lowering the deficit.
Following the last period before the last deep recession in America, during the period 1981-1982, when unemployment rose to levels higher than the current Democrats rebuked President Ronald Reagan due to a deficit of 6 per cent of gross domestic product. Now the Republicans berated President Barack Obama because of a deficit of 10 per cent of gross domestic product. There is also a political haggling, and the objective now being similar in European countries.
The simplistic classification of parties based on the policy preference for a particular size of the government is working to block the most complex orientation between the parties. In the U.S. Republican party, we can distinguish three types of fiscal conservatives: proponents of supply-side tax cuts, and those who want to reduce government spending, and supporters of the budget set. Historically, they fought on the tactics and strategies, but as the deficit is the difference between revenues and expenditures, they are linked closely. Because the sum of all tax revenues in the future (discounted to today's prices) should cover the total of all spending in the future, in addition to the national debt, the only way to keep taxes at relatively low levels is to control spending.
And also defended the Democrats for a long time for more government spending, and more benefits to more people, both at the ideological or using the strategy of building political alliances, the Republicans also very targeted tax cuts. So it is not surprising that Republicans use is a vote in relation to religion in order to impose a ceiling on spending cuts to interest due, while used by Obama and Democrats in Congress to impose higher taxes, in order to break the alliances set up by their opponents.
The high levels of debt associated with slow economic growth in the demonic dance. At the end of the day turn into interest payments on the debt burden to the extent that pay the shareholders to demand higher interest payments (the Greek religion was finally generates more than 30 per cent). The interest rates on U.S. government debt has remained low, so this potential threat and there, but the deficit in the future will be much higher than the expectations of the government when it returns to normal rates.
In fact, the best response is to the adoption of strong controls on budgets, on the side of structural reforms needed to boost growth. In the United States, which has the most income taxes rise among major economies, are being discussed reforms to cut the federal tax rates and broaden the base. In Europe, focused structural reforms to raise the retirement age and labor market flexibility.
Reducing the debt of governments, financial institutions, and families, is a major cause of the sluggish economic recovery. But slower growth means lower tax revenues more claim payments earmarked to ease the difficulties, which means putting more pressure on government budgets.
The list of gambling on the expectation that permanent recovery firm that would enable banks and households to rebuild their financial statements quickly enough to avoid the need for additional rescue operations. But so far, the gamble did not work enough for success or as quickly as hoped.
The banks earn on an ongoing basis, they borrow at interest rates too low, the Central Bank for the most part, then you get a higher interest rate on the loans they offer. But while they may exaggerate accounts of the spot market price in estimating the expected losses during any panic, the current values are often the accountant and political imagination. Indeed, further measures must be taken against Fannie Mae and Freddie Mac (agencies mortgage semi-government in America) and against some weak banks in America, as well as taking measures against some of the banks most vulnerable and the least funding in Europe (the stress tests last a step lukewarm first).
The banking system needs more capital. The best solution is the private capital from retained earnings, and new entrants, and new properties and new investments. But in some cases, may not be able to avoid additional public capital, in spite of his abhorrence to this point.
The dilemmas of debt in Europe and the United States once again proves that elected officials would ignore the long-term costs in order to achieve short-term benefits, and will not work unless forced to work, to try to be governed by failing to circumvent the laws of economics and to repeal laws calculation. This implies an extended period of economic turmoil and sporadic political unrest that would be much more than the discussions summer to the roof of U.S. debt and heavily indebted sovereign states in Europe. These discussions do not represent only one round only in a continuous and sustained struggle and carries with it the consequences of political, economic, and wide for the years to come.
Michael Boskin
The rich countries of Europe and America, the crown jewels of the capitalist democracies, now drowning in deficits and debt, because of the bloated welfare states is now established in the place (in Europe), or close to the robustness (in the U.S.). While Europe struggles to try to prevent financial contagion from spreading, and the struggles of America in an attempt to reduce their standard, the levels of serious debt are threatening the living standards in the future and working to stress the political institutions of internal and external. And now threaten the rating agencies further reduce classifications; and others see potential disintegration of the euro area and / or the demise of the dollar as a reserve currency worldwide at the end.
According to estimates by economists Kenneth Rogoff and Carmen Reinhart, the ratio of public debt / GDP by 90 per cent associated with diminished growth expectations too. In Greece the ratio of debt exceeded 120 percent, and Italy's 100 per cent, and in the United States, 74 per cent, up from 40 percent a few years ago, which is rapidly approaching 90 per cent. The IMF estimates indicate that the ten-point increase in the debt ratio is working to reduce economic growth by 0.2 percentage points. This means that the increase by 40 to 50 per cent of gross domestic product growth threatens to cut in the long term by half in parts of Western Europe, and by one-third of America and is a devastating decline in the gains achieved in standards of living for a generation.
Worse, that the burden of bank losses, which will be circulated to the community sooner or later, as well as the costs of retirement programs and public health is funded, often overestimate the true value in the figures of official debt. Moreover, the forms of funding controversial problems in some sub-national governments, for example in the United States and Spain, will impose pressure on central governments to demand financial aid.
In Europe, eager voters financially responsible in the countries such as Germany and the Netherlands to block the government bailouts, banks, and bondholders. As U.S. voters, it is known to be historically they prefer smaller government and lower taxes compared to European preferences (or at least tolerated him). If we add the continuing anger about the bailouts, and increased spending, even the Democrats in America have traditionally lavish party in the United States finally talking about lowering the deficit.
Following the last period before the last deep recession in America, during the period 1981-1982, when unemployment rose to levels higher than the current Democrats rebuked President Ronald Reagan due to a deficit of 6 per cent of gross domestic product. Now the Republicans berated President Barack Obama because of a deficit of 10 per cent of gross domestic product. There is also a political haggling, and the objective now being similar in European countries.
The simplistic classification of parties based on the policy preference for a particular size of the government is working to block the most complex orientation between the parties. In the U.S. Republican party, we can distinguish three types of fiscal conservatives: proponents of supply-side tax cuts, and those who want to reduce government spending, and supporters of the budget set. Historically, they fought on the tactics and strategies, but as the deficit is the difference between revenues and expenditures, they are linked closely. Because the sum of all tax revenues in the future (discounted to today's prices) should cover the total of all spending in the future, in addition to the national debt, the only way to keep taxes at relatively low levels is to control spending.
And also defended the Democrats for a long time for more government spending, and more benefits to more people, both at the ideological or using the strategy of building political alliances, the Republicans also very targeted tax cuts. So it is not surprising that Republicans use is a vote in relation to religion in order to impose a ceiling on spending cuts to interest due, while used by Obama and Democrats in Congress to impose higher taxes, in order to break the alliances set up by their opponents.
The high levels of debt associated with slow economic growth in the demonic dance. At the end of the day turn into interest payments on the debt burden to the extent that pay the shareholders to demand higher interest payments (the Greek religion was finally generates more than 30 per cent). The interest rates on U.S. government debt has remained low, so this potential threat and there, but the deficit in the future will be much higher than the expectations of the government when it returns to normal rates.
In fact, the best response is to the adoption of strong controls on budgets, on the side of structural reforms needed to boost growth. In the United States, which has the most income taxes rise among major economies, are being discussed reforms to cut the federal tax rates and broaden the base. In Europe, focused structural reforms to raise the retirement age and labor market flexibility.
Reducing the debt of governments, financial institutions, and families, is a major cause of the sluggish economic recovery. But slower growth means lower tax revenues more claim payments earmarked to ease the difficulties, which means putting more pressure on government budgets.
The list of gambling on the expectation that permanent recovery firm that would enable banks and households to rebuild their financial statements quickly enough to avoid the need for additional rescue operations. But so far, the gamble did not work enough for success or as quickly as hoped.
The banks earn on an ongoing basis, they borrow at interest rates too low, the Central Bank for the most part, then you get a higher interest rate on the loans they offer. But while they may exaggerate accounts of the spot market price in estimating the expected losses during any panic, the current values are often the accountant and political imagination. Indeed, further measures must be taken against Fannie Mae and Freddie Mac (agencies mortgage semi-government in America) and against some weak banks in America, as well as taking measures against some of the banks most vulnerable and the least funding in Europe (the stress tests last a step lukewarm first).
The banking system needs more capital. The best solution is the private capital from retained earnings, and new entrants, and new properties and new investments. But in some cases, may not be able to avoid additional public capital, in spite of his abhorrence to this point.
The dilemmas of debt in Europe and the United States once again proves that elected officials would ignore the long-term costs in order to achieve short-term benefits, and will not work unless forced to work, to try to be governed by failing to circumvent the laws of economics and to repeal laws calculation. This implies an extended period of economic turmoil and sporadic political unrest that would be much more than the discussions summer to the roof of U.S. debt and heavily indebted sovereign states in Europe. These discussions do not represent only one round only in a continuous and sustained struggle and carries with it the consequences of political, economic, and wide for the years to come.
