The Luck of the Irish (Part 2)

Can Ireland show the way forward?

Ireland has dramatically reduced its deficit, and growth seems to be returning. Is this a model the US could follow?

The intuitive appeal is visceral. After all, when families get into a hole, they need to tighten their belts, cut back on the lattes and leased BMWs, and live within their means. Could “expansionary contraction” work in a larger context?

The US economy certainly could use some help. Government debt held by the public is now 450% of government receipts. Because interest rates are so low, the cost of servicing this burden hasn’t hit us very hard, but this is a heavier debt load than almost any other developed country.

But economies aren’t families. When families get big and complex, saving gets complicated. You might cut back on steak every night, but still have the latest iPhone, iPad, and web-based hosting solution in order to grow a small business. Similarly, expansionary fiscal contraction has worked in the past—in Sweden in the early ‘90s and Canada in the mid-‘90s—but those countries are fairly small, and their turnaround came in the midst of global economic growth.

Austerity is intuitive as a way to get out of debt, but that appeal comes from a faulty analogy. Rather than being like a family, countries are more like complex ecosystems, adapting to new circumstances, interacting in complex ways, and either growing or declining.

Austerity works best when everyone else is growing. For the US, that isn’t the case right now.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T10:02:09+00:00September 28th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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