But in the absence
of government budget deficits, bank lending is the only support for demand — so the financial rug is pulled out from under the economy.
Witness the trade deficit and the record
US government budget deficit (and that's with Social Security on - budget, and the wars and other «emergencies» off - budget.
US politicians seem to be ignoring the
HUGE government budget deficit and national debt (on both sides of the aisle they spout rhetoric but no one seems able to find a compromise — and isn't that what leadership is really about?)
Along with
a government budget deficit of $ 1.2 trillion, that's nearly $ 2 trillion in new government debt that will need financing annually.
Given that the recession has been driven by a collapse in investment and
the government budget deficit is overwhelmingly a product of the falling tax receipts caused by the recession, the priority should be to increase investment.
But beyond that, Japan has high
government budget deficits and a very high government debt.
Interest rates are determined by many things including expectations of future inflation, growth, and
government budget deficits.