Past confusion
Politicians and lobbyists love complex policies – those general public cannot analyze to reach clear answers. The "deficit and debt reduction policies," fit into this neatly. Most understand debt to be bad and this is good for some to fan the anger by showcasing it. Social programs and handouts are good for some – compassion after all is what we teach our children - and this is good for some other politicians to win over the voters. Complexity, thus, has been good for politicians to push agendas they themselves do not understand.
Take the debt (stock) and the deficit (flow) of the US for example. Most politicians who seek offices do not understand them. What is a country's debt capacity? It does not depend on its balance sheet – it depends on its ability to innovate. If this were not so, there will be no start-up companies, some carrying infinite debt. Apparently, the credit rating agencies – the same idiots who rated all the failed companies in the last few years with AAA+ – just woke up to the fact that the US is carrying "unsustainable debt," to the merriment of many bean counters who have been "predicting," the same outcome for many years, if not decades. Asset prices did not change any.
Business schools have done a great disservice graduating finance and accounting professionals who count well but have little understanding of the system. They have migrated into policy and the press, spreading panic and confusion. They have created algorithms that trade and rate – companies and countries – based on the past and statistics – that have little relevance for the future.
It is innovation and scientific know-how that determine a country's "debt capacity," and not its debt/GDP ratio, the latter is an accounting metric – that can be calculated by most 3rd graders without any understanding of finance, let alone the heavy compensation commanded by the rating agencies. It's time to throw out incompetence from every financial and policy institution, that understand the past well but they are without any comprehension of the future.
Take the debt (stock) and the deficit (flow) of the US for example. Most politicians who seek offices do not understand them. What is a country's debt capacity? It does not depend on its balance sheet – it depends on its ability to innovate. If this were not so, there will be no start-up companies, some carrying infinite debt. Apparently, the credit rating agencies – the same idiots who rated all the failed companies in the last few years with AAA+ – just woke up to the fact that the US is carrying "unsustainable debt," to the merriment of many bean counters who have been "predicting," the same outcome for many years, if not decades. Asset prices did not change any.
Business schools have done a great disservice graduating finance and accounting professionals who count well but have little understanding of the system. They have migrated into policy and the press, spreading panic and confusion. They have created algorithms that trade and rate – companies and countries – based on the past and statistics – that have little relevance for the future.
It is innovation and scientific know-how that determine a country's "debt capacity," and not its debt/GDP ratio, the latter is an accounting metric – that can be calculated by most 3rd graders without any understanding of finance, let alone the heavy compensation commanded by the rating agencies. It's time to throw out incompetence from every financial and policy institution, that understand the past well but they are without any comprehension of the future.
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