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Recession or Recovery? What About Consumption on Both Sides of the Atlantic

The financial crisis – newspapers, radios, and televisions talk about it every day. You hardly pay attention, yet it affects your standard of living daily. The latest measures by the Belgian government to meet the objectives of reducing public deficits on sovereign debts are a clear example.

Recession or economic recovery? It seems we are currently at a turning point, and the situations differ both in Europe and the United States. Why? This is what we briefly address for you today.

The recession hits Europe

The countries of the European Union are bogged down by unsustainable amounts of sovereign debt in the long term. Governments are now paying for budgetary laxity that has settled in over the years. In short, our states have been living on credit for years, but today their debt is such that no one wants to lend them money except at high rates.

To cure the patient, Europe has imposed on member states not to exceed an annual public deficit of more than 3% of GDP. To achieve this goal, governments must cut their public spending but also increase their revenues. These are the famous austerity measures hitting everywhere in Europe.

The corollary of this fiscal purge is sluggish growth and catastrophic recession. Austerity, an effective remedy or a deadly poison?

Uncle Sam’s money printing factory

In the United States, things are never done like elsewhere. While the U.S. public deficit reaches 120% of GDP, nearly 16.5 trillion dollars, Republicans do not want to reduce public spending or increase taxes, total liberalism obliges. President Obama does what he can to convince the Senate, but the tax pressure still looms large in the United States. As a result, in the United States, when there is no more money, they print more to support economic activity.

This suicidal policy has the positive effect of maintaining economic activity, but it is not sustainable in the long term. The next debates in the United States will indeed focus on reducing the public deficit.

The current evolution in Europe

The evolution in Europe seems to be positive. Europe seems to have avoided the bankruptcy of several states, and the austerity measures allow states to more or less meet European objectives. However, this fiscal arsenal seriously threatens household consumption, and the recession sets in with the additional danger of a decrease in tax revenues, the perfect counterproductive effect.

 

The evolution in the United States

The United States will not escape the reduction of their abysmal deficit. The upcoming debates will be stormy but vital to the survival of the world’s largest economy. Economic activity is therefore inexorably bound to slow down in the United States in the very short term.

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