Over and over again, the world is seeing an anguishing and paradoxical debate over the Deficit Conundrum . Simply stated, nation after nation has allowed bubbles of inflated values to occur, accumulate and eventually topple their economies. The classic bubbly case is the overinflated housing markets in the US and parts of Europe that burst into pernicious unemployment in the developed world. A classic bubble – a limited supply of a commodity[housing] is allowed through ever more hazardous financing to grow in value such that owning a home regardless of the amount and nature of the debt on it became the only form of savings for many American “households”. But the financiers were themselves engaged in dubious and overleveraged and false ‘secutitized debt insurance.
Boom – in September 2008 it all collapsed with the bankruptcy of Lehman Brothers bank.Suddenly all those debt tranches and complex derivative instruments had to be unwound- and nobody could put that Humpty Dumpty of Debt back together again. So Wall Street and the City got John Q Public to do the deed on pain of another Great Depression. And to prove that they were grateful , the Walled Street 1% created a Robosigning foreclosure crisis 2years later to prove that they could fubar the dupes that are John Q….. again.
The paradox is that an apparently contradictory policy is required to correct the worst of bubble bursts. Overspending economies such as in North America and now Europe must overspend even more to get their economy’s engines restarted and growing again. And governments, the spenders of last resort, often have large deficits making such spending potentially self destructive if not carefully controlled in amount , target groups, and duration[Do not choose Door No1 with a bunch of gladhanding, “Job Creators” trickling down on it]. Likewise taxes have to be controlled very carefully. Too quickly raised and broadly applied they might snuff out any recovery. Not applied and they will create inflationary and soverreign debt bubbles.
So taxes must be a)made more equitable and b)raised to keep deficits in line when governments become the economic spender of last resort . Now here comes the wrenching malfeasance. Most political systems, have like the US , become seriously dysfunctional because lobbying and special access to decision makers by financial payments has not only gotten out of control, but also become officially sanctioned. See the US Supreme Court on campaign and lobbying spending as Free Speech. In sum, our Representatives are now financial captives– hence getting things fixed is at the moment an even more serious Second Conundrum. In programming, these self perpetuating Conundrums are known as a infinite loop. Just in case you are of the TeaPartying persuasion, that means you and the economy gets tea bagged over and over again.