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Tough Medicine

Yesterday the UK government announced their austerity program aimed at reducing the crippling debt facing the country.  Tough stuff indeed with a projected loss of hundreds of thousands of public sector jobs. 

Some projected changes in France precipitated riots in the streets, which is not unusual in that nation.  The extreme left wing tendencies there seem to think that money grows on trees and the government should just keep paying for stuff it can’t afford.  Obviously its not that simple, but at its most basic level its the way it is.

A country’s financial situation is not that different from a personal financial situation … you can spend more than you earn for some period of time, but during that time you build up debt.  In order to service that debt you pay interest, and of course now you are paying out even more and increasing your debt levels.  At some point you can’t keep doing it … you need to reduce spending in line with income.  Its the same for individuals, companies or countries.

There is no money tree!

At some point reality needs to be faced.

Many companies survived the latest recession by recognizing the need to contain costs, and by keeping a tight control on spending.   As the recovery continues companies will become a little more adventurous, and the spending will increase … jobs will be created and the pressure on economic systems eased.  More people employed means more taxes paid which means that countries can pay down debt and afford to provide more services.  It also means individuals will have money again, disposable income will increase and more money will be spent in the economy.

So … you need to face your own financial situation, and your country needs to face its financial situation.  It seems that the way to solve economic issues is to encourage business to grow again … I’m not seeing a whole lot of that these days.