Politicians are the same the world over. As are people. We tend to err on the optimistic side. Add to that the natural desire to please the electorate, or simply the masses if its a dictatorship, the odd war for a bit of agrandisement, and it always seems better to spend now rather than saving for a rainy day. Some now attack Brown for spending too much during the last labour government. no one. i said NO ONE, said this at the time.Ok, people quibbled about a little here or there but essentially all politicians and pundits agreed on the general level of an affordable budget. That level is well above what we now regard as sensible, but only with the benefit of hindsight.
Then US BANKS LOST AN INCREDIBLE AMOUNT OF MONEY. I keep saying this but people dont seem to be listening. Whether a particular country was behaving carefully or profligately, overnight a manageable situation became a crisis. A few countries have come through this quite well but most have not. The US appears to be doing ok, as does the UK. But both are still spending stunning amounts of money they dont have. They are OK only because they still have credit. And because they are printing money to spend.
Likewise, europe as a whole is doing the same, and the crisis at the moment is about the richer countries giving credit to the poorer. Germany has been dripping in credit only slowly for what I think are two very good reasons. It is not possible even for Germany or via eurobonds to finance debt indefinitely. If we try to do so, what evidence is there that the worst offenders have yet repented their old style behaviour and will now invest rather than spend? if they do not do this, then it doent matter how much money germany provides, it will not be enough.
There are three gropups who might make use of cheap money. The government, private industry, and private individuals. In the Uk, Ireland, and i dont know which other countries, a huge amount of private money has gone into property. People complain that individuals are not saving, but most of us regard a house as an investment and therefore as savings. Except, it isnt. In the UK successive governments have fostered the illusion that buying a house is the same as investing in a pension or having cash in the bank. The reality is that we have run up whopping debts because of this. Likewise, most investment in stocks and shares, although it is backed by a tangible asset in the form of a fractional ownership of a company, buying and dealing in shares normally makes no real investment in actual production. What it does do, is make bankers rich, and even governments if they care to tax those bankers. But this is illusionary wealth. All that has happened is that money earned by individuals has been spent on buying paper, and part of that money has been taken by the banks and government. The person ends up with a piece of paper, which has an intrinsic value equal to any other scrap piece of paper. It only has value if someone else with cash is willing to buy it.
Then, private companies may borrow money, buy machine tools and make something. I expect even in Greece companies have been doing this, How well they do this is debateable. Private companies have no interest in making the rest of us rich. Right now, they mainly seem to have noticed there is a real problem with the economy and it is a bad time to invest in new projects. Sensible, at least from their perspective. But governments give more of the money we dont have to people who intend to do nothing with it? In the good times private industry still had no interest in helping countries. jason will tell you that at the drop of a hat it will run for a different country. Sure, it will if you let it.
Then there are governments. A number of people object to governments dabbling in manufacturing or providing services. This is absurd. It is as bad as banning private industry. Governments must provide services which operate on a national scale. If it is considered necessary or desireable to boost the economy then governments may be the only way this can happen. Private industry can have a very narrow focus, and governments may be the only actor which can start interest in a new area or blue skies research, or even subsidising whole new industries to start up. But if you take the mindset that governments must not intervene, then this cannot happen.
