There are pundits who opine it is not true that the time bomb of the public debt is ready to explode at any moment because there are many other options. The public and private debts are not similar and hence this argument of the time bomb does not hold water. The most important difference between the two is that the government has the alternative option of raising revenues via taxes – something that the private sector cannot.

The government can increase taxes to get together the resources to meet interest and other commitments and clear the debts. Taking this recourse would be easier now because of the generally accepted view that the crisis of 2008 was largely due to sudden increase in inequalities between the rich and the poor segments of society. There were sharp increases in profits and heavy compensations for executives. Correcting this surplus by means of extra taxation is possible and justifiable.

The revenues entering in through this way is used by the government to sustain as well to expand expenditure in the domestic sector causing increases in output. This will make managing the debt easier. This is why government expenditure financed by debt is looked upon as a tool to tackle to the impact of the recession – most conveniently handy instrument.

If the differences between the two – debts in the public and private segments are not accepted and treated the same then taxation on surplus income has to be ruled out as one of the policy options. Those who are sitting on wealth readily buy this argument.

If the public debt has to be brought down to battle sovereign default then the government should not increase revenue by levying fresh taxes. The option then is to cut back on expenditures – cuts that will adversely affect growth. Interest cannot be cut back. This will mean measures in austerity like freezing wages, reduction of social security support and collecting through high indirect taxes. Subsidies too would have to be reduced. Loans to buy homes, or even to help people foreclosure victims. Employment will be negatively impacted as layoffs will take place. Which can further aggravate the foreclosure crisis.

In brief the debt has to be brought down by levying taxes directly or indirectly – the sufferer being Joe down the road rather than the rich.

It will lead to public anger. They will feel it unjustified to pay the price for a crisis that was not of their own making. They will take to the streets and ultimately this will tell on the votes.

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