Never a good time for borrowing

 Cheming Yang

The fourth G20 Summit was held in Toronto, Canada on June 27, and among turmoil.

Chinese President Hu Jintao delivered a speech in the Summit entitled “Unite in a Concerted Effort to Jointly Create the Future.” According to the MOFCOM’s news release, “Hu stressed that we shall deeply realize the seriousness and complexity of the in-depth impact of the international financial crisis and continuously carry forward the spirit of pulling together in times of trouble to overcome difficulties and cooperation and win-win to promote the construction of the G20 mechanism, speed up the construction of new international finance order featuring justice, fairness, toleration and orderliness, boost the construction of the global trade system of openness and freedom, raise the self-development ability of developing countries and push forward the world’s economy to be a strong, sustained and balanced growth soon.”

The main struggle in this summit is to strike a delicate balance between economic stimulus and reducing government deficits.

US President Obama at his G-20 Press Conference in Toronto was also confronted with this difficult choice. His answers to this question provide a quite balanced perspective, although difficult to achieve in practice. He stated “[w]hat we did say coming to this conference is we can’t all rush to the exits at the same time. So countries that have surpluses should think about how can they spur growth and how can they spur demand. Not all of those involve stimulus. Some of them might involve structural changes in their economy. Some of them might involve passing financial regulatory reforms so that their banks are lending again. But the point is that in each country what we have to recognize is that the recovery is still fragile, that we still have more work to do to make this recovery durable — but we also have to recognize that if markets are skittish and don’t have confidence that we can tackle the tough problems of our medium- and long-term debt and deficits, then that also is going to undermine our recovery……We have to make sure we’re not rushing to the exits too quickly and all at the same time. But we also have to be mindful that the debt and deficit levels that many advanced countries have right now are unsustainable and have to be dealt with in a serious way.”

With that being said, when will it be a good exit time? There are always excuses for bad timing. When we borrow, we always hope that we will be able pay back once our objectives are met. If we are not able pay up in the end, then we hope for the second best that we can pay less back. In the situation of government borrowings, sadly as history demonstrated, they have always wound up in the latter scenario. The governments can simply inflate out of it. That is an almighty tool that ordinary people have no control of and tragically bear most of the consequences. So is there a good exit time? Or should we ordinary people put our feet down and declare there is no good timing for borrowing, either?

2 Comments

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2 responses to “Never a good time for borrowing

  1. Pingback: TABLE OF CONTENTS « GOLD MONEY TALK

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