OK, the country is deep in debt.
The World is deep in debt.
And even the debts are deep in debt.
Greece is bankrupt because they cannot borrow sufficient cash to pay the interest on the loans they already have,as well as paying their usual, everyday running costs. All Europe, nearly, would be in the same boat except some countries can borrow extra money still, despite having pro-rata the same debt. They can still borrow extra each year both to meet running costs such as state sector wages, new Jaguars and the like and also to meet the interest payments on existing loans.
The loans, in the form of “bonds” and “gilts” (or “guilts”, maybe) are far cheaper for some borrowers than others, who are obliged to offer higher returns – interest – on those they issue. In general, these are the Northern and Western European countries and, heavily, heavily, the United States. Since these are countries who often buy these bonds, eg for pension funds, regarding themselves as the better bets, there seems to be an element of prejudice here.
Thus each country has a – huge- debt as well as far larger hidden debts from private, commercial and institutional borrowings. Each year, each country has a figure projected for the money it’s government will require to meet the deemed interest payments on its accumulated government “obligations”. This is not to pay off these obligations, it is solely to meet the interest as, on maturity, each debt will be replaced by another of the same value – “issue of new bonds.”
At this point is brought in the concept of “Deficit Reduction”. Deficit is the shortfall each year between the above projected figure for interest payment and the actual cash scraped together against the bill. So a Deficit Reduction Plan is a scheme to reduce this annual shortfall. It is not a plan to pay off the National Debt. It is merely a plan to stop the annual increase in that debt which can be specifically put down to not being able to meet the “projected figure for interest”, outlined above.
Yes, that’s right. As far as I can see, it would be OK to spend more on doctors’ salaries and frightfully complicated computer programming systems that do not work, as well as Jaguars and Unemployment Benefits and illegal, pointless wars at £50000 per missile, but The Deficit must be seen to be falling to zero even though the National Debt may still be increasing.
But sadly I now have to introduce another imponderable – “Chartalism” coupled with MMT, modern monetary theory. And here the thin line between governments borrowing money and magically creating money vanishes, because governments chartle money into existence by deeming that they can borrow it from themselves only to pay themselves back in the future from revenues to come. The best analogy I can come up with is to be mortgaging your future tax revenues. I would now refer to “Quantitative Easing” but I’m sure you, my reader, are probably not yet ready for such assault. Suffice to say that it appears to be re-mortgaging your future tax revenues.
So, whereas chartism was all about looking after the rights of long suffering millworkers in their daily struggles to keep a basic life living, chartalism does the same for governments, for it enables them to survive, although all reasonable assessments of their liquidity and viability would deem them wholly and wilfully bankrupt.
Population growth should probably be part of this conversation, too, although it never is. But if there are one million more Brits that ten years ago – and I think it’s greater than that – then that’s a whole lot more cash needed. Maybe £20 billion each year which, by and large, will just circulate with all the rest. But all this background debt and the need to pay interest on it means all the money has to move ever faster as the overall obligation increases.
Let’s go back to the Greek example and their projected default. They are going to be allowed to ignore half their actual national debt so only meet half their interest payments. The banks owed those 200 billion Euros will just have to whistle for it. However the European Central Bank will re-liquiditize those banks which are “badly exposed to Greek debt”. How is this process not the ECB paying off half the Greek debt? And what will the Greeks have to do in return? Live less? Pay higher interest rates or make some other future returns to the ECB exchequer? So how will Ireland, Portugal, Italy, Spain react to this favouritism? Me, too – I’d love to have had half my debts written off. And, anyway, where does the ECB source the funds to pay off half the Greek debt? Can they chortle, I mean chartle, too?
This is reactive, corrupt and essentially fantasy economics. Bullying, extortion and corporate-centred planning. It still promotes the massive, centralised, high tech, high spending state-capitalist system to prevail. This is what has propelled the unsustainable, anti-green agenda which has caused so much damage to our collective environment over the last fifty years and which is ever more bankrupt – both literally and figuratively – with every day that passes