Lending operations

Loan guarantee budget cuts will not boost business confidence

    many policymakers insisted that the crisis was caused by irresponsible of the Government to issue bonds. This in most cases is not consistent with the facts, only Greece and a few other exceptions. Actually, the cause of the crisis is excessive lending by the private sector, including banks ' excessive leverage. Of the bubble led to sharp drop in economic output, resulting in significantly reduced tax revenues. Now, the government deficit is the result of crisis, rather than a cause.

    second said the nature of the crisis. Real estate bubble in the Atlantic (600558, unit) on both sides when it burst, have cut spending in many areas of the private sector in an attempt to pay off old debts. From a personal point of view, this response is reasonable, but it turned out that, on the whole, this reaction is counterproductive, because one person's spending is another's income. Sharp decrease in expenditure led to economic depression and recession worsen public debt.

    is a reasonable way of dealing with it. When collective efforts to cut spending by the private sector, public policy should play a role in balancing this effect, try to maintain a certain level of spending. At least, we should not be sharp cuts in government spending or increase taxes on ordinary people, both of these initiatives will make the situation even worse.

    Finally, we have made a big mistake. Sharply after the initial stages of the crisis, our responses are correct, then our policies go awry – began to focus on the Government's deficit, arguing that the public sector should work with the private sector's efforts to reduce debt. Fiscal policy not only failed to play a balancing role, but ultimately cut loans with private sector expenditure, increasing inhibitory effects on the economy.

    If the crisis is not so serious, we may be able to remedy through monetary policy. But in the case of interest rates already close to zero, monetary policy alone cannot remedy the situation (though it should do everything). Of course, we need to develop medium-term loan scheme to reduce government deficits. But if it is too eager in the more recent period in the implementation of such a plan is likely to backfire, because that could lead to the recovery of abortion. Our top priority is to reduce the unemployment rate, to prevent unemployment from becoming too prevalent, thereby increasing the difficulty of economic recovery and reducing future deficits.

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