Dollars, Euros, and Debt: How We Got into the Fiscal Crisis, by Vito Tanzi (auth.)

By Vito Tanzi (auth.)

Dollar, Euro's and Debt discusses the hot monetary, fiscal, and financial situation. It argues that the point of interest that has been wear cyclical features of the predicament has neglected the elemental aspect, that the quandary is basically structural, even supposing cyclical components (the sub-prime challenge) could have induced, or higher expected, it.

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Extra info for Dollars, Euros, and Debt: How We Got into the Fiscal Crisis, and How We Get Out of It

Sample text

The actions of the Fed have been creating some new bubbles in the bond market, which expose whoever buys these bonds (such as pension funds or personal savers), and especially those who buy the long-term bonds, at their current high prices to potentially large future losses, if – or, perhaps better, when – interest rates return, as they must, to the normal levels of the past. Long-term real and nominal interest rates reached levels that in the United States and probably in some other countries had not been seen in 200 years.

However, the pressures on central bankers to show that they are doing something about the high unemployment and the depressed economic conditions, and, in Europe especially, the perceived need to “save the euro,” have been too strong for 36 Dollars, Euros, and Debt central bankers to resist. Being human, central bankers respond to social and political pressures, just like all other humans. To many policymakers and observers, this intervention seems to be justified, especially in the short run, on the basis that it is necessary to facilitate, or make possible, the medium-run introduction of needed reforms.

We had to wait until the supplyside revolution of the 1980s before the supply side of the economy again received full attention and, for some conservative economists, to introduce a new and contrasting ideology, based on the view that higher taxes always have damaging effects on economic growth, and that often all that countries need to do to grow is to lower tax rates. The Keynesian-based view of the role of balance of payments surpluses has also influenced, over the years, the debate between the USA (a deficit country) and China (a surplus country), on which country had the responsibility for eliminating the imbalance.

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