A Tale of Two Economies

Two countries belonging to the G7 group of nations, each with a Budget deficit of roughly 10 per cent of there GDP and both applied two different approaches to bring it down.

Priority of Nation A was to stabilise the economy and then worry about the deficit. Nation B on the other hand thought that increasing deficit will negatively impact the economic growth.

Nation A, printed more money to increase the liquidity in the markets. Nation B started the austerity measures by cutting back government spending.

Nation A grew by 0.8% in the fourth quarter of 2010. (Annual rate of 3.2%)

Nation B declined by 0.5% in the same period. Also, the consumer sentiment index declined to the level not seen since early 1990’s.

Nation A is the United States of America

Nation B is the United Kingdom

UK Prime Minister, Mr. Cameroon’s intensions are noble, but when citizens are struggling with balancing there budgets, Government should absorb some deficit to help people balance there financials.

As Mao once said about the French Revolution, “Who’s right? It’s too early to say”, same may go for the two economies but round one definitely goes to President Obama’s adoption of the Keynesian approach to stabilise the US economy.