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| Fiscal Policy | |
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| Tweet Topic Started: Apr 10 2004, 04:23 PM (200 Views) | |
| ds9074 | Apr 10 2004, 04:23 PM Post #1 |
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Admiral
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I've just been reading something which made me think about this. It seems that different countries have different policies in this area and I thought it might be insightful to compare them. What I was reading was that in the 1990's the US had a "pay-as-you-go" budget policy. From what I could see that capped increases in spending and meant that tax cuts had to be offset by spending cuts. Correct me if I'm wrong. Those rules, as far as I know are not any longer in force. In Europe the stability and growth pact limits budget deficits to 3% of GDP and says that countries must work towards balanced budgets, and getting their overall debt below 60% of GDP. The pact is supposed to be binding on Eurozone members although France and Germany have both broken it. In the UK we are not bound by the pact because we are not in the Euro. Instead the Government has self-imposed fiscal rules. They are not binding but to break them would have political cost. They split Government spending into current and investment spending. The Government can borrow to finance investment spending, provided total debt doesnt exceed 40% of GDP. Current spending must be balanced over the economic cycle, so any deficits in downturns must be matched by surpluses in upturns. I'm not really sure of what exists elsewhere. My question is do you think it is right and/or useful to have these kinds of rule or do you think elected Governments should be able to decide unhindered? Also if we going to have rules what should they be? |
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| Dwayne | Apr 10 2004, 05:08 PM Post #2 |
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Profanity deleted by Hoss
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In principle, these types of rules are good, but in a time of war, these rules are bad. If the United States had such rules during WW2, America couldn't have financed the war effort when America was spending in excess of 100% of the GDP on the war. So, in short I think such rules are good when it is pausible, but not during emergency situations. |
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| Swidden | Apr 10 2004, 05:35 PM Post #3 |
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Adm. Gadfly-at-large; Provisional wRench-fly at large
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Add to the fact that in each of his State of the Union speeches President Bush has asked Congress to limit discretionary spending increases to 4% per year. So far that has not happened. |
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| ds9074 | Apr 10 2004, 05:43 PM Post #4 |
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Admiral
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So do you think, if Congress cannot be trusted to keep to the 4%, that they should enact some sort of 'self denying ordinace', to make sure they keep to that limit? On the point about war time spending, I think you can make a case for seperating out normal spending and emergency spending. Under the European system for example the 3% limit can be breached in exceptional circumstances such as a war or a major disaster etc. So far in the UK the Government has decided that all expenditure for the war in Iraq must still fall within their rules, but since they are self imposed rules they could also be exceeded in an emergency. |
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| Swidden | Apr 10 2004, 06:28 PM Post #5 |
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Adm. Gadfly-at-large; Provisional wRench-fly at large
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Which is why, every so often, someone starts talking about amending the Constitution with a balanced budget amendment. There tends to be a lot of hesitancy by representatives from both parties for such amendments. There was a bill some years ago, called Graham (or Gramm?)-Rudman-Hollings, that was supposed to do this short of a balanced budget amendment. |
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| ds9074 | Apr 10 2004, 06:35 PM Post #6 |
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Admiral
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The problem with balancing budgets is that can cause Government to act against the best interests of a country. So, for instance, in a downturn revenues fall and non-discretionary spending rises. To balance the budget either taxes have to rise or spending programs have to be cut. Either way you end up making the downturn worse. So I think some flexibility, such as balancing over the economic cycle, is a good idea. |
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| Dwayne | Apr 10 2004, 08:20 PM Post #7 |
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Profanity deleted by Hoss
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Just a personal opinion. I think in a society such as America, what keeps the ball rolling through deficit spending, is the permanency of the nation. It's easy to finance the debt, because the nation is likely to always exist and has the resources to pay almost any debt. |
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| ds9074 | Apr 10 2004, 08:37 PM Post #8 |
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Admiral
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Yes and no. If a Government takes on two much debt your likely to see interest rates rise. Additionally the more you borrow the greater your interest payments are going to be. If your paying more to creditors you've got less to spend in the areas where you really want the money to go. |
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| doctortobe | Apr 10 2004, 10:27 PM Post #9 |
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Speak softly, and carry a 57 megaton stick!
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High interest rates are not necessarily a bad thing. High interest means greater returns on things like savings accounts, CDs, and bonds. |
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| anon_persona | Apr 11 2004, 06:48 AM Post #10 |
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Lieutenant Junior Grade
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Fiscal Budget restrictions can be a boon - Colorado is in love with them. One who complains about their restrictiveness in an emergency during war makes the mistake of assuming deficit spending at all times. Why do governments tend to rely on deficit spending? They can merely build a "rainy day" fund for such events. There is no reason to have a "balanced" budget or a deficit. Why not a surplus? It's what people in the REAL world do. Interest rates are a monetary issue, not fiscal, and out of the purview of the feds (and in the purview of the Feds - hehe). High interest rates means inflation. Your CDs and bonds will have higher rates but those rates will be counterbalanced by enough inflation to eliminate the purpose of the high rates! High interest rates are as bad as inflation since they are the same thing. Look at Argentina. They have hyper-inflation - over 100% a day. They get paid two times a day rather than two times a month. They have to spend all of their money as soon as they get it! With high enough inflation saving becomes all but impossible, and without saving no one can retire, no one can "save up" for a car or house, and no one can accumulate enough wealth to "live the American dream." I am hyperbolizing the likely situation as it would be in the US. However "high" inflation in the US (meaning like >6%) would still lead to less saving, unemployment, a greater disability in accumulation of wealth, and so on - basically my hyperbolizations to a lesser degree. Hence my using the word hyperbolize. |
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