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Thursday 24 May 2012

Will we have two decades of recession like Japan?


The UK economy shrank by 0.3% in the first three months of the year, more than previously thought, revised figures have shown. This is a massive indicator of the problem with austerity it is a political experiment tried many times in many countries and it has always failed.  For the last two decades Japan has been pursuing the kind of fiscal austerity program now being urged on Europe to combat their debt crisis.
When Japan’s bubble economy imploded in the early 1990s, public finances were in surplus and government debt was a mere 20 percent of gross domestic product. Twenty years on, the government is running a yawning deficit and gross public debt as swollen to a sumo-sized 200 percent of GDP.
Fiscal austerity did not begin immediately, but Japan’s experiment with Keynesian-style public works programmes ended in 1997. The public works programs did not promote a significant recovery, but in the six years from 1992 to 1997, real GDP at least managed to grow at a feeble 1.3% annual rate. But in the two years after austerity began — public works spending being cut back and the consumption tax raised, real GDP fell by 2.1% (1998) and 0.1% (1999). Despite fiscal austerity after 1997, the budgetary situation steadily deteriorated, government outlays rising as percentage of GDP while tax revenues are 5% lower as a percentage of GDP than in 1988 when the consumption tax was introduced.

If George osborne continues with hos austerity plan we will sink deeper and deeper into recession I can only asume he wants this recesion.

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