Re: Economic survey: no economic target achieved in 2011-12
We’re going into fantasies now. I was just responding to Yazdi’s comment that countries don’t need to pay back their loans.
What happened to Greece is what happens in corporate bankruptcy proceedings too. Some of the loan is written-off, some rescheduled. EU helped because there is contagion effect of sovereign default, meaning if Greece went bankrupt, other countries in the region would be badly effected and whole of EU would suffer. The primary reason was that Greece was spending too much on social welfare while the income from taxation was dwindling. Ripple effects from financial crises worsened the situation.
There is a cost involved with it though. The Greek debt is now rated lower and hence they need to pay higher rates of interest. If this cycle continues, then at one point nobody would be willing to buy Greek debt.
Debt is integral to a capitalistic economy. It creates multiplier effect where a manufacturer/business borrows to make things/provide service and consumers borrow to buy those things and more the manufacturer is able to borrow and manufacture AND sell, more jobs are created which enables more people to buy and borrow and cycle continues. Governments borrow to finance their expenditure, and more ‘developmental’ expenditure leads to more projects leading to more jobs, more taxes and more people spending on goods and services creating even more jobs.
Debt is not bad. Being not able to generate enough resources to repay is bad. If you don’t like the idea, better embrace communism.
For Pakistan, what we badly lack is a decent education system to develop indigenous technologies. Food for thought: Toyota’s total sales are almost same as Pakistan’s GDP. Please don’t blame 0 interest rate in Japan for that.