Video: Spending our way out will not work
23rd Jan 09, 9:26pm
Here's the quick version. All the bailouts and debt-funded attempts to kick-start consumer borrowing and spending will not work. We all secretly know it's not sustainable and don't buy it. New Zealand and the other current account deficit-funded countries must reduce their spending and increase savings to rebuild an unbalanced and damaged global economy. Central banks in deficit-funded countries like New Zealand should keep interest rates high to encourage savings and discourage consumption. Governments should do everything to increase savings while keeping a basic safety net to ensure the vulnerable survive. Indebted consumers should accept they will have to live with a lower standard of living for some time while the economy uses the increased savings to rebuild productive capacity. Businesses should cut their cloth to fit and use the extra savings to slowly rebuild production and productivity. This is a long, slow grind with no quick fixes. Let's stop wasting money and time on the quick fixes and accept the inevitable long, deep recession. It is what happens after a debt-funded consumption binge. Otherwise, we risk making it worse and leaving our children indebted for decades.