Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Wednesday, August 17, 2011

The Global Public Debt Problem

This chart sums it up.

So should all the big deficit/big debt countries be slashing spending and upping taxes?  No.  Because that will just worsen the downturn and in turn increase the deficits and the debt.  So how do you square this circle?  You freeze spending, not cut it, and you increase taxes (modestly) in future years.  You can freeze spending by freezing defence spending, and removing or reducing indexation of pensions and public sector salaries.  While you're at it, you might also do some fundamental reforms, for example by introducing a gradual increase in the old age pension qualifying age.  Then you make sure monetary policy is very accomodative, and if inflation drifts up a little you pretend you haven't noticed.

Don't hold your breath.

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