Friday, May 7, 2010

Governent debt and quantitative easing

Read this excellent article by Lucky Tan.

My comments
Europe now has to print money, i.e quantitative easing, to buy over the government debts in several countries. This will cause inflation but will lead to greater stability of the markts. It is dangerous to have government deficits funded through short term borrowings.

There are three ways for a government to fund its deficit
a. increase tax
b. print money
c. borrow

Many governments have borrowed money. It is not sustainable, as the burden falls on the future generations. The other two options have now to be considered.