- 15 May 2021 07:59
#15172547
If you spend now more than you take in in taxes, it means spending cuts in the future.
You'd have to be brain dead not to realize this.
Nevertheless many in Greece were surprised and outraged when their government had to start making cuts to pay back years of budget deficits. The anger boiled over into riots.
Well, what did these people think would happen?
I've encountered a lot of people here who seem to think running up debt is a free source of money, and aren't the slightest bit concerned about budget deficits. "Free money", seems this is the same type of mindset that has caused many governments to go into hyperinflation.
The two are linked. If you spend money now, it's going to mean not spending that money in the future. If you don't pay for it now, you're going to pay for it in the future, plus interest.
That's going to mean cuts to areas of government spending.
And if you don't pay it back, it's going to ruin the country's credit rating, and that will mean very high interest rates if the government borrows money. (It will also make it very difficult to be able to borrow money if there's ever an emergency)
Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.
And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first. If you don't pay off that debt with tax revenue you're going to be stuck with higher interest rates, and it could be hard to find enough investors willing to lend the money.
If the country's central bank is used as the lender of last resort, that is essentially the same as paying the interest on the loan with inflation. (It's a little too complicated to explain the reasoning and math for that here)
In the end it mostly just cuts into the spending power of the government's tax revenue, and you don't really achieve anything.
This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.
You'd have to be brain dead not to realize this.
Nevertheless many in Greece were surprised and outraged when their government had to start making cuts to pay back years of budget deficits. The anger boiled over into riots.
Well, what did these people think would happen?
I've encountered a lot of people here who seem to think running up debt is a free source of money, and aren't the slightest bit concerned about budget deficits. "Free money", seems this is the same type of mindset that has caused many governments to go into hyperinflation.
The two are linked. If you spend money now, it's going to mean not spending that money in the future. If you don't pay for it now, you're going to pay for it in the future, plus interest.
That's going to mean cuts to areas of government spending.
And if you don't pay it back, it's going to ruin the country's credit rating, and that will mean very high interest rates if the government borrows money. (It will also make it very difficult to be able to borrow money if there's ever an emergency)
Some conservatives have justified tax cuts (paid for by deficit spending) by claiming that a lower tax rate will help economic growth and have a multiplier effect. Well, if that's the case, there's a flipside to the coin they don't mention. If for some reason things don't go as planned, when that debt has to be paid back it's going to stifle economic growth.
And we might not have so much control over when we pay it back. If there are rising interest rates, there's going to be a lot of pressure to start trying to pay down that debt as fast as possible. You see, once these debts reach their maturity date they have to be renewed, you have to find some other investor to lend the money to pay back the first. If you don't pay off that debt with tax revenue you're going to be stuck with higher interest rates, and it could be hard to find enough investors willing to lend the money.
If the country's central bank is used as the lender of last resort, that is essentially the same as paying the interest on the loan with inflation. (It's a little too complicated to explain the reasoning and math for that here)
In the end it mostly just cuts into the spending power of the government's tax revenue, and you don't really achieve anything.
This was the very problem the Greek government faced in the Greek Debt Crisis, only they couldn't inflate their way out of the debt because the other countries in the Eurozone didn't want the burden of inflation shifted on them.