Feb 2, 2012

Debt policy follow up

I recently wrote about the importance of the accumulated debt in the worlds current financial troubles and am heartened to learn some of the mainstream is not thinking that differently.

Martin Wolf both agrees that central banks need to pay more attention to aggregate leverage levels and that tax codes should remove incentives that encourage debt.  That these changes made his short list of 7 ways to fix the system is very encouraging.

Paul Krugman also points to the growth of debt as the primary reason the economy was unsound from 2003 to 2007.  Repeating this simple narrative will eventually lead to enacting the prescribed solutions.

Now that the failure of austerity is rapidly becoming apparent, I am hoping new policy measures will be aimed at the structural issues that led to debt build up while returning to the old standard practice (it became unfashionable in 2010 as I recall) of counter-cyclical monetary and fiscal policy.

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