Comment 75927

By A Smith (anonymous) | Posted April 13, 2012 at 16:38:27 in reply to Comment 75888

>> Austerity wasn't an option in Greece. They were broke.

If Greece had its own currency, it could run 20% deficits in perpetuity. Greece is in trouble because it isn't in control of its banking system.

Comparing Ireland and Iceland is helpful in this regard.

Both Ireland and Iceland saw their public debt go from around 20%, to over 80%, since 2008.

The difference is that Iceland has its own currency, which allows the government to control spending levels, regardless of tax revenues. While Ireland's unemployment is at 14.3%, Iceland's is only 7.3%.

Nominal GDP in Ireland since 2008 is down about 10%. In contrast, Iceland's nominal GDP is up 16.95%.

Being able to control spending and deficits is important to ensure that there is enough spendable cash in the economy. If there isn't, the end result is slow spending and slow job growth.

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