http://ca.news.finance.yahoo.com/s/20042010/24/f-afp-imf-makes-public-debt-warning.html
Summary
The stability of the global financial system is being threatened by the rising public debt. The International Monetary Fund said that the risks to global financial stability are limited as the economy began to recover. Concerns over the advanced sovereign risks could hurt the stability gains and cause the collapse of credit for a period of time. During the economic crisis, the debt grew since governments had to bail out some banks, pay for unemployment benefits and economic stimulus programs. Greece was on the verge of bankruptcy; therefore the government had to increase taxes and cut spending to decrease the state debt. Even though a full-blown depression has been avoided, there are still risks since the economy is still recovering.
Connection
In the text book, public debt is defined as the money owed by the government. Money had to be borrowed in order to help the country as what it said in the article when government needed money to pay for unemployment benefits. When Greece had to increase tax rate in order to finance government borrowing, then this will cause tax disincentives. Individuals will earn lower incomes and if they have lower incomes then they would be spending less, resulting in a lower level of GDP. If a large amount of money has been borrowed, it would take a long time for the money to be paid off. The burden of paying off the debt is shifted to future generations even though they did not borrow the money.
Reflection
With the rising public debt, I wonder how the government plans to pay off the debt. Even though it was used to bail out banks, pay for unemployment benefits and projects to help the economy, does it actually help in the long run? Since there are some negative effects to borrowing money such as not being able to pay it off and allowing future generations to deal with the issues, there are the citizens too. They would be concern over the amount of money that is being borrowed and with a large public debt they could lose confidence in the government. Hopefully the public debt will be paid off soon and the global financial system will be stable.
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I think you are right that citizens are one of the important factors to be considered. Right now, I believe Greece has already lost people’s confidence because of their debt crisis. Many people are mad and making the country paralyzed. Their government is currently asking help from other Euro countries and from the IMF for money. It makes me wonder if the euro currency would be affected because of this debt crisis. Also, I wonder if Greece would make it through this crisis because even though it seems that there are many other countries that want to help Greece, but the debt is too huge and how long would it take to have their citizens gain back confidence to their government.
ReplyDeleteVanessa Lo
Economics 12
D1P3