WHICH COUNTRY WILL TRIGGER THE COMING GLOBAL TAILSPIN?
Which country will serve as the trigger for the next financial crisis? Given the continuing rise in debt-to-gross domestic product (GDP) ratios in many countries, it is apparent that a new financial crisis will occur. Most of the speculation has been about when, rather than where. The most likely candidates are heavily indebted countries with a large growth deficit.
The growth deficit is the difference between expected GDP growth and the expected government spending deficit as a percentage of GDP. The way to eliminate the growth deficit is by either increasing economic growth or reducing government spending.
Almost all economists understand that economic growth can be increased by (1) reducing taxes on labor and capital, (2) eliminating counterproductive regulations, and (3) putting an end to monetary uncertainty.
But what government understands this? Massive deficit spending has not worked as advertised, for a number of years in the countries listed in the accompanying table. All of them are at risk of even more financial shocks and stresses, and none of them seems politically able to make the degree of necessary change to solve the mess.
