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Austerity refers to when governments have to cut back on their spending, in order to prove to their creditors that they will be able to pay back their loans.
Awhile back, my buddy Forex Gump explained austerity measures in his blog. Take a look!
about 1 year ago
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Austerity measures are simply belt-tightening measures for the economy, when the government needs to scale down their debt. They usually implement massive spending cuts and tax hikes that could eventually hurt the economy.
about 1 year ago
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In economics, austerity is when a government reduces its spending and/or increases user fees and taxes to pay back creditors. Austerity is usually required when a government's fiscal deficit spending is believed to be unsustainable.
Austerity measures are typically taken if there is a perceived threat that government cannot honor its debt liabilities. Such a situation may arise if a government has borrowed in foreign currencies which they have no right to issue or they have been legally forbidden from issuing their own currency. In such a situation banks may lose trust in government's ability and/or willingness to pay and refuse to roll over existing debts or demand exorbitant interest rates. In such a situations, inter-governmental institutions such as the International Monetary Fund (IMF) typically come in and demand austerity measures in exchange for functioning as a lender of last resort. When the IMF requires such a policy, the terms are known as 'IMF conditionalities'.
about 1 year ago
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