Canada initiated a successful debt reduction program in the 1990s that involved spending cuts and economic growth. How’s they do it? Well, their currency devalued so like Sweden they exported a lot:
And conveniently, they were located adjacent to the United States of America which grew rapidly during this period:
What’s more, I think you could make a strong case that given Canada’s situation a fiscal consolidation program was necessary to implement expansionary monetary policy. That’s not the case for the United States today. Some people think we could conduct monetary stimulus regardless of fiscal policy and there’s also a credible case that fiscal expansion is needed to make monetary stimulus work. But we’re just not in the Canada situation where we need to cut the budget to facilitate interest rate cuts.
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