[iwwr]

So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it?

Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse.

I think most of the damage from so-called "austerity" has been decisions taken with little warning and at the very last possible moment.

[rjtavares]

I'm Portuguese, and the amount of people here that think that "if the financial crisis in the US didn't happen we wouldn't have a problem" is mind-boggling.

Because apparently having your debt rise from 50% to 70% of GDP in 7 years without recessions or crisis (2000-2007) [1] and running a budget deficit that never went below 3% [2] isn't a sign of a problem...

[1] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#...

[2] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#...

[sergiosgc]

Portugal entered the euro, and a couple of decades of economic stagnation while companies switch from producing cheap labor shoes to high value added goods was to be expected. Portugal did surprisingly well up until 2007, with small but consistent GDP growth and was clearly on the road to being a more evolved economy. 2007 saw a growth of 2.4%, by all measures good for an economy in transition.

During the transition, some debt accumulation would be tolerable. Levels up to 120% were, prior to Reinhardt Rogoff considered acceptable.

As such, the view that the timing of the financial crisis was particularly unfortunate for Portugal is, in my view, entirely correct.

[rjtavares]

> During the transition, some debt accumulation would be tolerable. Levels up to 120% were, prior to Reinhardt Rogoff considered acceptable.

I may be rusty on my Keynesian Economics professor's lessons, but shouldn't you reduce government deficits in expansion times, so that you can safely let the stabilizers kick in if you enter a recession?

> As such, the view that the timing of the financial crisis was particularly unfortunate for Portugal is, in my view, entirely correct.

Of course it was unfortunate, because the country (both public and private sector) were incredibly leveraged. Which is completely different than saying that it was the cause.

Pleases note that the banking system is Portugal didn't suffer as much as the Spanish or Irish, e.g. In fact, the banks that were nationalized in Portugal were the result of deliberate fraud (Ponzi-like schemes), not just irresponsible behavior.

EDIT: btw, here's Portuguese per capita GDP in constant terms between 2000 and 2007 to dispel the success argument - http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...

[sergiosgc]

> I may be rusty on my Keynesian Economics professor's lessons, but shouldn't you reduce government deficits in expansion times, so that you can safely let the stabilizers kick in if you enter a recession?

Exactly my point. There was no expansion in the '00 decade, so debt growth was ok.

> Of course it was unfortunate, because the country (both public and private sector) were incredibly leveraged. Which is completely different than saying that it was the cause.

But the cause is also not a high debt level. Portugal was caught in a fragile state when a much wider crisis exploded.

Your chart is not the right one to observe the economy conversion success. This one is: http://i.imgur.com/ltAX8fe.png (it's the same data, viewed as YoY variation)

[knowtheory]

Depends what your borrowing situation is.

During the financial crisis, irrespective of our level of public debt, the bond rates were actually such, that people were basically PAYING the federal government to borrow money.

Instead, we had politicians on an austerity tear, and ranting about how we needed to reduce the national debt. We could have borrowed a big chunk of money, earned the interest off of it, and then just turned around and paid back the principle.

If Republicans actually believed in running the Government like a business (they don't, but they say it), it's almost criminal that we didn't take advantage of the opportunity.

[pmorici]

One of the reasons rates have remained so low is because the Federal Reserve has bought over 3 Trillion in debt including just shy of 2 Trillion dollars of the US Governments debt. If debt isn't a problem then why is the Federal Reserve continuing to buy US Treasuries which has the effect of suppressing interest rates.

http://www.reuters.com/article/2013/04/18/us-usa-fed-discoun...

[talmand]

Yes they say it, but the opposing party opposes it. The Democrats most certainly do not wish to run the government as business but as more of a piggy bank that someone else fills each night. Therefore, even if the Republicans wanted to do such a thing they likely cannot.

But, as you say, they haven't been very serious about such an idea for quite a while.

[knowtheory]

That's a pretty unsophisticated understanding of liberal and/or Democratic politics and policies.

The broader point is that nobody actually wants to run the Government like a business (nor is that necessarily a good idea in aggregate). But even at the points where it makes sense for the government to behave in a business-like manner (and there are some), we do not and cannot get our shit together to do so.

[talmand]

Not only is it unsophisticated, it's also a huge over-generalization. Maybe I should have pointed out I was responding in kind.

Although I would say my opinion on the Democrat party is that it is not run by liberals just as the Republican party is not run by conservatives.

As for the rest, I agree.

[digitalengineer]

Isn't monetizing it exactly what we're seeing today? Looks an awful lot like a currency-war to me. Everyone is trying to debase their currency and export their way to prosperity. The US accuses China, and vice versa (QE 1,2,3, etc). Japan just promised to effectively double their monetary base last week. What is the alternative to lowering debt? I don't know but all this printing will surely cause money to flow to otherwise less productive parts of the economy won't it? If anyone could make some sense out of this, I'm listening.

[Retric]

The real problem is by the time a county has big debts there so used to deficit spending defaulting = austerity. The US borrowed enough money to avoid a significant economic melt down. Long term avoiding pain from borrowing is not sustainable be cause you always want lower taxes and faster growth.

For austerity to work before your forced into it you need a multi decade commitment to gradual spending reductions or significant external stimuli. The US could for example cut military spending by 75% today and still be just as safe. The problem is simply flooding the job market with such people. However cut 3% a year and you have few short or long term problems as people naturally leave jobs and you just avoid highering. Increase the retirement age slowly and the personal impact is minor, cut benefits directly and you destroy lives.

PS: Also slowly cutting back government like that withought reducing taxes reduces short term economic growth. The advantage is keeping a good credit raiting and avoiding default but it's still painful.

[skylan_q]

http://www.policyalternatives.ca/publications/monitor/beware...

It only really takes a few years. We went through "painful" austerity in Canada. Both at the federal level and provincial level. This left everyone hating the federal finance minister and the premier of the province. In the end, the environment was cleaner, the debt problem was tackled, and everyone had a job. (when you compare the late 90's to the early 90's)

Here's another story about austerity: http://articles.washingtonpost.com/2012-01-20/opinions/35438...

(but yes, it's after a war, so that somehow makes it inexplicably different? People still debate this)

[fyi80]

Was Canadian austerity like European austerity? Or was it a cut from (making up numbers here) 2x European social services to 1.5, vs Europe's 1x cut to 0.5x?

[afterburner]

Don't fight debt in a massive recession when borrowing costs are at record lows and unemployment is high.

[dualogy]

> Monetize it? Default on it?

Not that there is a difference in real terms...

[fyi80]

The difference is in who suffers. How is it distributed among creditors, debtors, cash holders, wage earners, etc...