The Dangers of Fiscal Policy

Argentina, Mexico, Thailand, Indonesia, Greece...what do all these countries have in common? Sadly, they’ve all faced crippling sovereign debt defaults.

Fiscal policy can be a super useful tool – under the right circumstances. In this video we’ll discuss fiscal policy gone bad, and the warning signs to look out for.

------------------------------------------------------------------------------------------------------------

[santoshkumarsingh]

This is the most UNDERRATED youtube channel I have ever seen.... ECONOMICS is such an interesting subject....Most People are busy blaming the government instead of understanding the REAL REASONS behind it...😔😔

[KartikDobhal]

I love economics and I'm a student of economics(hon). this channel is amazing. keep up the good work please.

[fredmedina]

For an individual that doesn't understand the importance of economics, this is helping me see it much better, please continue with your videos, this is a great tool.

[PANDEYJITOURsVLOG]

Good job sir..keep enhancing such a good video

[logic]

Debt held by the government in its own currency is never a problem. You need to create more money as the medium to allow goods and services to be exchanged. Currently money creation is mostly done by the banks and money is destroyed by the repayment of the debt. Thus think of it as a computer game, debt is thus the amount of money (tokens) that needs to be created for the game to go on. America is now in a "golden age" -- incredible amount of innovation, digital productivity is high. Not all productivity can be calculated into your GDP. The incredible faith in the US allows US to buy at will and even stop others from buying. Will it stop? Sure? why not but not because of your monetary policy. Your loose monetary policy is one of your secret weapon that unexpectedly controls the world starting from Nixon. Along with it comes the "bad stuff" and the great inequality perceived by its citizens. Confusion arises is that it is not understood that debt held by an individual is different from debt (in its own currency) by a sovereign nation. If a country can print money so why does it put itself in debt? It is accountability. If by simple logic presented earlier by this MRU, the monetary base has exploded, I mean super exploded, so why are you not in hyperinflation? This video explains it ... the Fed policies. I am not an American, but I have more faith in your Fed. I have read the Fed St Louis notes.

[knh]

This video is showing how, right now, the fed should be balancing its books and paying down debt; and instead, politicians are crying for more debt and qe so they can keep the roaring 20s casino markets going on longer, what fiscal irresponsibility. The laws of diminishing returns will catch up with us.

[oliverbatt]

You've mislabelled the AD-AS diagram axes which will confuse some people.

[mrzack]

Argentina and mexico and thailand and indonesia do not suffer sovereign debt defaults. Unless they borrow in a foreign currency. Greece is stuck in a Euro, it has no sovereign currency. For a sovereign USA, it's had a depression/recession EVERYTIME it paid down its debt.

[Khadangasantos]

So, during this corona outbreak govt. Policies can't really help a lot.

[mahmud]

Our government debt 27.20% (Bangladesh) and GDP 221.4 billion

[MatthewGraham]

It seems that fiscal policy shouldn't even be expected to follow sound economics. Politics is mostly irrational with emotional fervor surrounding all sides. Either it's driven by fear due to military or social protectionism. Talking about budgets and savings sounds austere

[YashArya]

Mainstream economists use way too many words to say "fiscal/monetary policy will basically always get us into trouble!" while avoiding trying to use those words.

[byrdiethemighty]

those interest payments are to ourselves. We are not obligated to pay the accruing interest payment or any debt really. The 2008 bill was footed by the american people, its not on the books in any meaningful way as we just absorb it. Government spending and taxation should be used to achieve full employment and price stability and government deficits are not necessarily bad for the economy. A functioning government isnt really constrained like that, its a line in the sand and when inflation goes up, tax the 4 families that make more than the bottom 50% of americans, and when they threaten to leave, tax them when they go and tax them again when they inevitably come back.🤭🤭🤭

[austrolib]

"We're just not that good at national savings". No. That is what the gold standard is for!

[cyberjunk]

This, along with most other videos I've seen on fiscal policy and "stimulus" (like meth?) seem to discuss debt's primary problem as one of repayment. But what if the interest rate was 0% and we could simply borrow forever as long as there's a creditor? or we simply default and recover? To many people, the latter doesn't seem all that bad...spend a lot now, default, then start over again. Or even just cook the books and create money, which is effectively what we're doing with unbounded deficit spending.

What I think is missed in almost every presentation is the actual problem with deficit spending (or created money) in the first place is that it a sign of unsustainability and a broken economy. It means a society is too focused on consumption and not enough on efficient investments to actually maintain that quality of life. It's pretending that currency equals wealth vs. actual concrete things like services provided or valuable goods. This is true even of a drop in "aggregate demand" (which manipulating via fiscal policy is a fiction, since aggregate demand is just the flip side of current productivity, which is not necessarily increasing just b/c more money is spent since what it's spent on might not be valuable). Deficit spending also seems to, without fail, work its way to the status quo (e.g. flowing mega corps in china, or your own landlord), enriching them further.

So the real benefit of avoiding deficit spending and getting rid of the debt is, I think, less about avoiding servicing the debt or some vague fears about confidence (which can be manipulated by savvy politicians), but rather that it's a forcing function for us to more closely align our economy with actual productivity, and to not simply enrich the status quo and the well-connected.

[Solanixhanti]

please people in the comments let’s keep our opinions to ourselves, the experts surely know better.

[knh]

My take, monetary policy helps supply side econ, why hasn't fiscal policy helped demand side for the last 40 yrs. If middle class had fiscal policy balancing monetary policy that would have prevented this inequality we are having now. I wonder why fiscal policy has not benefited demand side econ. $ in politics maybe, the new bribery for a new gilded age. The wealthy control our legislation branch, until Americans wake up, the plutocrats will continue to weaken our Democracy until, one day, we will order our yellow vests online and hit the streets.

[WallaceRoseVincent]

Can anyone answer this?
You (and many others) keep talking of high debt and some day something dangerous is going to happen. Well, under Reagan we had an 800 billion dollar deficit  we are at 4 Trillion. We already have a high deficit. Nothing has happened. If I were to believe your analysis, something should have happened long ago. Nothing (like run away inflation) has happened as we continue to add debt. I think there is something wrong with your models or analysis. Why has your train of thought (like so many others) been so wrong for so long? If you were right, something should have broken down a long time ago. The financial crisis was a property speculation bubble and the increase in debt fixed the economy. High debt doesn't seem to matter. We are not on the gold standard. Can you have a debate with someone who has the opposite view of yours? High debt just doesn't seem to matter. Why? I made corrections to my miss use of deficit and debt ... but the argument is still valid. Where is the inflation? The Government debt (and Government deficit spending) just doesn't seem to matter .... in the USA or China or ...