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The True Deficit Reduction Idea

Warren Buffett has his own idea for reducing the deficit. While he was on CNBC, he put it quite bluntly:

“I could end the deficit in 5 minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.”

Simple idea, but one with merit.  All you have to do is align the self-interests of the politicians with a sound fiscal policy.

It turns out that this exact idea has been put in force within Brazil.   In May of 2000, Brazil implemented the “fiscal responsibility law”.  Some main points of the new law:

  • bans the federal government from bailing out debt-ridden states and cities, as it has done repeatedly in the past
  • it limits federal, state and municipal borrowing and payroll costs
  • bans politicians from leaving their successors a stack of unpaid bills and offenders may be banned from office or even jailed

So how has this plan worked for Brazil?  Judge for yourself:

For those so inclined, you can read the full Brazilian law here:[Download not found]

Posted in Economics, Markets, Politics.

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