26 Jul 2011

Getting countries out of debt

The USA is on the brink of defaulting on the $14.7 trillion it now owns. The potential impact of such an event are almost impossible to imagine. But one very clear effect of downgrading the USA's current triple A rating would be an increase in the interest rates it would have to pay on any further loans - and as Greece knows only too well, this can easily double the amount of outstanding debt in just a year or too. Surely, noone in their right mind could imagine that this sort of situation can be solved by simply cutting public expenditure? The British Chancellor appears to think that cutting back on public spending is all that is needed. I'm convinced that they are all wrong.

What is needed is a taxation system that gets revenue from the unproductive parts of the economy - namely, the trillions of dollars, euros and pounds that are being used for speculation. Without any need for a specific tax on speculation, it would be enough to impose a flat rate financial transaction tax on all transactions to have the desired effect. I can think of no logical argument that could defend the idea that speculation should be untaxed whereas the useful stuff like buying goods and services should be taxed with 20% VAT.

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