Currently
the US is now over $15 trillion in debt. [1] The national debt has now
gotten to the point where it is larger than US GDP and is now unpayable.
In response to this crisis, many in government have been arguing for
austerity measures, yet they have not been using that actual term,
rather there has been an argument for deep cuts in social spending, with
one example being Paul Ryan’s budget proposal which targets mainly the
poor and elderly. The debt crisis may very well lead the US to being
forced to choose from two poisons, austerity on one hand and default on
the other.
Austerity measures are currently being pushed by the intellectual elite. Niall Ferguson argues that the main problem in Western democracies “is the huge debts we have managed to accumulate in recent decades, which - unlike in the past - cannot largely be blamed on wars” and poses the question “[W]ould young people be wise to encourage politicians to pay-off national debts now to avoid an even more miserable financial future?” [2]
In the US, Pacific Investment Management Co.’s Neel Kashkari, states that the US should “stop kicking ‘the can down the road’ and implement fiscal austerity measures so the economy can fully recover from the financial crisis.” [3] While Ferguson states that the debt “cannot be blamed on large wars,” the facts prove him to be incorrect as during the Clinton Administration there began a decrease in the national debt and ended with the US being in the black. [4] When President Bush came in, the US went back deeply into debt and this debt increase can be blamed mainly on the Afghanistan and Iraq wars.
Austerity measures are currently being pushed by the intellectual elite. Niall Ferguson argues that the main problem in Western democracies “is the huge debts we have managed to accumulate in recent decades, which - unlike in the past - cannot largely be blamed on wars” and poses the question “[W]ould young people be wise to encourage politicians to pay-off national debts now to avoid an even more miserable financial future?” [2]
In the US, Pacific Investment Management Co.’s Neel Kashkari, states that the US should “stop kicking ‘the can down the road’ and implement fiscal austerity measures so the economy can fully recover from the financial crisis.” [3] While Ferguson states that the debt “cannot be blamed on large wars,” the facts prove him to be incorrect as during the Clinton Administration there began a decrease in the national debt and ended with the US being in the black. [4] When President Bush came in, the US went back deeply into debt and this debt increase can be blamed mainly on the Afghanistan and Iraq wars.
The
arguments for austerity, while they may be many, are nullified by the
fact that the International Monetary Fund, the biggest advocate of
austerity for so-called third world countries (and increasingly for many
first-world European countries), has admitted that austerity only hurts
income and worsens long-term unemployment. [5] In other words,
austerity only makes a bad economic situation worse. Yet, this begs the
question, if austerity doesn’t work, then why are people arguing in
favor of it? This question can be understood by examining the situation
from the perspective of the banks. Austerity measures result in large
amounts of privatization and thus allow for banks to buy up essential
services such as water and electricity systems for dirt-cheap prices and
then the banks can make large amounts of money from the perpetuity of
state assets. Thus, the banks that gave the loans will then be able to
recoup the amount of the loan and then make much more money.
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