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by robryan
4802 days ago
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How does declaring bankruptcy help creating more jobs? (Honest Question) Would seem to me that it would been even harder to get credit flowing once all your previous creditors have been wiped out. From an admittedly fairly uninformed position it appears to me that cutting spending is only going to further erode businesses positions and tax revenue, leading to an even worse position. |
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Here's another example in Canada of austerity working: http://articles.businessinsider.com/2010-06-07/markets/29978...
They have 5 bullet points, and I think only 4 really applies. But even then, Canadians weren't getting heavily leveraged, especially since the BoC had a single mandate of keeping inflation in check which means high interest rates (and no mandate to respond to labor market conditions, which usually results in more leveraging and higher inflation)
This austerity something most hated Chretien for, but people didn't make too much of a fuss. 10% expenditure reduction? grumble grumble... Today's reaction: sacrificing a 2.4% increase in the federal budget for a 1.8% increase? BRUTAL AUSTERITY DON'T YOU REMEMBER NAZIS???
Ontarians all hate Mike Harris. After he was done the deficit was gone and debts reduced, schools and medical care resumed as before and everyone had jobs. We brought in automotive emissions tests, many new provincial parks, many new lands for natives and the environment was much cleaner than when he showed up. He was hated because he made everyone do what they were supposed to do. As far as I've seen, people only like the politician that promises the moon and loads on debt that "someone else" will pay for. :(
From an admittedly fairly uninformed position it appears to me that cutting spending is only going to further erode businesses positions and tax revenue, leading to an even worse position.
Many people use their gut to voice their opinions on these things, and that's not to say that they're wrong. People often extend the concept of household finances to the economy.
Simple analogy might help explain where that notion might come from: Your parents are heavily indebted seniors that do some chores for you in order to live with you. You are working to support yourself and them, financially. Your company is having money issues and decides you are working 30h weeks instead of 40h weeks. (25% pay cut) Would you then take money from your heavily indebted parents to then buy product (economic stimulus) from the company so that their earnings increase just enough to be able to afford to hire you back to full capacity? Would you have your heavily indebted parents borrow more money to buy enough product? Not likely. You'd probably rather just look for other work or start a company and take the financial hit/cost of having to look for new work or starting a company. Basically starting over. You could also just tough it out and stick to eating cheap canned goods, cancel netflix, and slowing down repayment of your parent's debt and getting them the cheap diapers and only absolutely necessary meds (austerity option)
Applying moral of the story: If Spain doesn't go through bankruptcy, (or severe, short-term austerity) it's keeping the 30h work week while the parents are still saddled with huge debts while also trying to maintain the lifestyle that it could maintain working 40h weeks. So the less Spain spends today and tomorrow, the less it has to tax today and tomorrow.
The above is all for illustrative purposes.
Would seem to me that it would been even harder to get credit flowing once all your previous creditors have been wiped out.
For sure, no one will be keen on buying 30-year government bonds. This is a huge problem for the credit markets. We've seen some mixed results in Iceland, though. But a larger economy like Spains? Might not fare as well.