How refreshing it’s been to follow the recent elections in the UK! (And, how much less painful than watching the process in California!) The new coalition government in the UK made a promise that, if elected, they would balance their budget that would result in several years of economic pain. They were voted in and now they’re delivering on that promise.
On October 19th, the UK announced they will terminate 490,000 public jobs over the next four years to get their financial house in order. The US government currently refuses to even think about serious spending cuts. They’ve decided to go the route of raising taxes so they can keep the spending party alive. Eventually, the chickens will come home to roost for the US. Like the UK, we will eventually be forced to take our medicine. The longer we wait, the more painful it will be.
Anyone with a lick of economic sense knows that if an individual, company, or nation overspends, they will ultimately face a reckoning. That means you must eventually pay back the debt or declare bankruptcy. Nations that have their own currencies have one other option, inflation. The most probable outcome of any of these decisions is a lower standard of living as disposable income, once available for the nicer things in life, vanishes toward debt repayment, taxes, or eroded purchasing power.
No individual, company, or government can borrow to spend in excess of their income without eventually paying the piper.
Want to know more? Check out this related article in The Wall Street Journal.