financial crisis on public finances have devastating effects. Before the outbreak of financial crisis the most serious cost overruns countries hardest hit and most profound. For the Group of Seven (G7) member states, this refers to the influence of the United States by the bubble and the United Kingdom. A common problem facing the two countries is: when to start tightening and tightening and to what extent. Financial constraints must be substantial, but early action may be devastating mistake.
? University of Maryland's Carmen Reinhart (Carmen Reinhart) and Harvard University's Kenneth ? Rogoff (Kenneth Rogoff) in his book on the history of the financial crisis that, in face of crisis the impact of the country, "the actual stock of debt has almost doubled." * U.S. and UK will also be the case. Only a small part of the financial sector by storm, or the result of stimulus. International Monetary Fund (IMF) pointed out that from 2007 to 2010, the British budget deficit to gross domestic product (GDP) ratio will be increased by 10.6 percentage points, but the crisis-related discretionary measures has nothing to do. ** In the U.S., the ratio will rise 6.5 percentage points, of which 1.8 percent can be attributed to such measures. Most changes are structural: GDP and fiscal revenue levels will not return to the previous path.
However, it is how to assess the financial position of the drop it? One way is from the historical point of view. IMF expects 2007 to 2014, net debt crisis will make the UK the proportion of GDP increased by nearly 50 percentage points. Comparable only before the war period. The increase over the French Napoleonic wars or the two world wars during the 20th century, smaller, but less than, or even higher than the other 18th century wars.
Thus, it is a unique history of the British financial period. The United States is not always the case. The same percentage increase in U.S. debt and very large-scale war - World War II, below, but higher than the American Civil War and the First World War. However, the debt ratio rose sharply in times of peace, this is not the first time in the United States. First appeared in the 1981-1992 period of Republican rule. During that period, they found a supply-side (Supply-side economics).
Despite the increase in debt ratios between the two countries are great, but historically, expected in 2014 will reach the level of debt is not uncommon, especially in the UK - the country's public sector net debt to GDP ratio of close to 250% twice. For the United States, debt levels may seem quite the highest level ever. However, the previous highest level which did not cause insurmountable problems. In the 19th century, both countries have successfully get rid of the debt, and prices remained stable. Half of the 20th century, they once again to be successful, however, inflation was also played some help.
This is not unexpected. Assumed real interest rate of 2.5%, then the same amount of debt and GDP real debt burden of the cost of only 2.5% of GDP, almost a piece of cake. And then assume trend growth rate and real interest rate equal to (a not unreasonable assumption), then the necessary conditions to achieve stable debt is the main budget balance (ie, before interest payments). Which is also almost no damaging consequences.
question then what is it? That is, people may no longer believe the government will eventually control the deficit. This suspicion has at least two reasons. First, the war will end naturally, peacetime deficit is not. Secondly, in the end of the war it is easy to reduce the deficit, it is difficult in times of peace: every penny of the shadow behind the lobby.
commitment to deficit reduction only lack credibility. Make the situation worse is to adjust the intensity. IMF announced in 2010, the United States for the structural primary deficit 3.7% of GDP, the UK was 7.8%. The latter is the highest of G7 nations, including Japan, with most close to 6.9%.
IMF is also assumed that, by 2030, it is necessary to debt ratio to 60% of GDP, in order to leave space to respond to new shocks. The agency concluded that the magnitude of U.S. fiscal tightening should be 8.8% of GDP, while the UK is impressive 12.8%. Other countries have made such changes, particularly in the 1980s in Ireland, and Denmark 90, Finland and Sweden. But this will be a huge challenge, unless the country can rely on rapid export-led growth. These figures make the British Prime Minister Gordon ? Brown (Gordon Brown) has become a nonsense to keep the stability of the declaration. This is hardly the future of the UK scene.
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