An economic prediction

I usually hold the mainstream’s feet to the fire but today, I have something different. An economic prediction by Bill Mitchell:

Last week (August 10, 2012) the Japanese Parliament approved a bill to double the sales tax (from 5 per cent to 10 per cent) over the next three years. It is a case of déjà vu. We have been there before. The economy suffers a major negative private spending shock. The government’s budget deficit increases as tax revenue collapses. The outstanding government debt rises more quickly than in the recent past. The rising government deficit supports a recovery in real GDP growth. The conservatives start shouting that the government will run out of money, that interest rates will soar and inflation surge and life as we know will end. The government raises the sales tax and cuts back spending. Real GDP growth collapses, tax revenue falls and the deficit and debt ratio continue to rise. We are back in Japan in 1997 – but the only problem is that we are playing out the same story in 2012. The reason – Japan thinks it is Greece but has forgotten about 1997.

We’ll see how things shake out.

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This entry was posted in deficit spending, developed countries, macroeconomics, neo-liberalism, public debt. Bookmark the permalink.

One Response to An economic prediction

  1. Pingback: Mitchell’s economic prediction revisited | Reality-based World View

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