A strange feeling born in me when I connect whatever word with a being living. As long as the word expresses a general idea, it is there inoffensive. But once the junction between a word and a being is made, it puts me sometime in despair. Take the case of the word "austerity" that is much used these days in continental Europe. It means the state or quality of being austere. In the ancient world, being austere was a spiritual exercise. People who chose to be austere lived and moved with very little. They traveled light. They will often go to and live at a place where they could be alone with their own mind. I guess austerity was a way up, not a way down.
Austerity in economics means a drastic reduction of the budget allocated to some social expenses. Such a reduction is often operated to reduce the debt burden of the state or worse to pay interests on the accumulated debt. Paying its debt send a positive signal to capitalists who may lend more to the unfortunate victim. It is a vicious circle in a situation where there is no growth. More debt will be contracted to pay more interests.
There is no social justice in this word. The poorest who cannot pay and the richest who want not to pay are the only beneficiaries of an austere economy. Those in the middle suffered most as the burden of the debt is on their shoulders. I understand why it does not feel right to pay off a debt when you are completely broke. First, you borrow to pay the interest on the debt. Second, you are asked to continue borrowing in order to be able to pay in order to be able to borrow. And the story goes on. It is a huge credit card. A revolving debt without an end. You pay your debt generation after generation until someday the world enters in a new revolutionary era.
Let me give an example. Suppose a budget of a country is $1,000. Remember a budget is just a projection of expenses and revenues. Nothing guarantees that revenues will match expenses dollar for dollar, and period for period. It happens most of time that expenses are engaged first, and revenues follow suit. There is a delay between the moment a dollar is spent, and the moment a dollar is collected. Government must cover imbalances by borrowing.
If the government is efficient at collecting taxes and other revenues it may by the end of the year balances its budget. If the government is inefficient, the deficit will grow. Suppose that revenues are only $800 when expenses are $1000. The difference $200 will be covered up by borrowing at a positive interest rate. If there is a functioning internal financial market, the $200 will be obtained domestically. If there is not an internal financial market, the $200 will be borrowed internationally.
The $200 is the principal. In order to pay off the $200, the government must borrow next year at least $400, holding everything else constant. If the situation in the country is such that the population grows, but there is not economic growth, the government will borrow a year after at least $800. At one point in time, the government will exhaust the internal market. It will go international, if only possible. In fact, if nothing positive occurs, the debt will accumulated to $1600 in the 4th year, which indeed is greater than the budget of $1,000.
Austerity in economics means a drastic reduction of the budget allocated to some social expenses. Such a reduction is often operated to reduce the debt burden of the state or worse to pay interests on the accumulated debt. Paying its debt send a positive signal to capitalists who may lend more to the unfortunate victim. It is a vicious circle in a situation where there is no growth. More debt will be contracted to pay more interests.
There is no social justice in this word. The poorest who cannot pay and the richest who want not to pay are the only beneficiaries of an austere economy. Those in the middle suffered most as the burden of the debt is on their shoulders. I understand why it does not feel right to pay off a debt when you are completely broke. First, you borrow to pay the interest on the debt. Second, you are asked to continue borrowing in order to be able to pay in order to be able to borrow. And the story goes on. It is a huge credit card. A revolving debt without an end. You pay your debt generation after generation until someday the world enters in a new revolutionary era.
Let me give an example. Suppose a budget of a country is $1,000. Remember a budget is just a projection of expenses and revenues. Nothing guarantees that revenues will match expenses dollar for dollar, and period for period. It happens most of time that expenses are engaged first, and revenues follow suit. There is a delay between the moment a dollar is spent, and the moment a dollar is collected. Government must cover imbalances by borrowing.
If the government is efficient at collecting taxes and other revenues it may by the end of the year balances its budget. If the government is inefficient, the deficit will grow. Suppose that revenues are only $800 when expenses are $1000. The difference $200 will be covered up by borrowing at a positive interest rate. If there is a functioning internal financial market, the $200 will be obtained domestically. If there is not an internal financial market, the $200 will be borrowed internationally.
The $200 is the principal. In order to pay off the $200, the government must borrow next year at least $400, holding everything else constant. If the situation in the country is such that the population grows, but there is not economic growth, the government will borrow a year after at least $800. At one point in time, the government will exhaust the internal market. It will go international, if only possible. In fact, if nothing positive occurs, the debt will accumulated to $1600 in the 4th year, which indeed is greater than the budget of $1,000.
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