Fiscal Irresponsibility vs. Fiscal Austerity

The strategy to generate growth on the two sides of the Atlantic could not be any more different. The U.S. government is cutting taxes and raising government debt – hoping that increased spending will generate growth. European governments on the other hand are raising taxes, tightening their belts and actively lowering debt levels. This raises the question of whether fiscal irresponsibility or fiscal austerity is the right strategy to generate growth. There are strong arguments for and against fiscal irresponsibility. The critics argue that Americans will be paying heavily for the deficit later while supporters say that deficit financed public investment can create a “virtuous” circle whereby public investment spurs growth, in turn improving the budget outlook. The fiscal austerity agenda risks creating a “vicious” circle in which austerity slows growth, necessitating further austerity.

This argument is as much about politics as it is about economics, but I think Winston Churchill said it best –

“For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”

What do you think?

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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