Seeking Alpha
June 14, 2011
Standard & Poor’s has just given Greece sovereign debt the lowest rating it has. The Greek leadership is upset. “We have a very tight fiscal package coming,” the leaders say. Yet the downgrades continue.
The timing of the reduction in the debt rating, according to some pundits, is not coming at a very good time.
But, these things never happen “at a very good time." Building up excessive amounts of debt reduces options (read here) and they leave you in a state where there is no “good time” to deal with the debt.
Yet, people and governments, over the past 50 years, acted as if the amount of debt outstanding did not matter to the economy and that any fiscal difficulty a country might find itself in could be overcome by increasing the spending of the government and increasing the amount of government debt.
The amount of debt a government issued did not matter because the economic models the governments used did not include government debt. Thus, a government could increase debt as much as it wanted and its economic models would be unaffected.
More
No comments:
Post a Comment