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This video looks at the budget deficit in the US, but its analysis is also relevant to the UK ahead of next week’s Comprehensive Spending Review.
The fact that healthy economic growth and a minimum rise in spending can eventually lead to balanced budgets is a powerful message on the vitality of free economies, but I have a concern about the debt and, perhaps more important, the interest on the debt.It seems that revenue must not only exceed annual expenditures but that it must also, in the long run, be sufficient to cover servicing the debt and paying down the principal. Yet, as Niall Ferguson argues, U.S. interest payments will rise exponentially unless drastic action is taken (a.k.a. spending cuts); sovereign debt crises around the world are another real threat.Is this a fair assessment?
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