You and I. Our children. Our grandchildren. Our descendants for as far as you can see. We are all slaves to debt.
Not your credit cards and your insurance policies. Not even your mortgages. Your government debt.
Your government collects taxes from you and then pays for certain services that it has promised to provide. It lays roads. It pays the armed forces. It provides hospitals and libraries and street lighting and everything else you count on them to provide. It pays for the bureaucracy and the administration and the IT and the support and the HR and everything else that makes that work.
Every year the government anticipates that it will receive a certain amount of money in taxes. It then draws up a budget to spend that money. Of course it’s only natural it will miss that target as the economy changes over time. So when they fall short they borrow some money.
The obvious result is that they should pay that money back, with some interest, and next year they get back on track. Except that don’t.
They always spend more than they have coming in. Every major westernised democracy is spending more money every year than they KNOW they will have coming in. They think that this is ok. They do it apparently because they think that the extra expenditure will promote growth in their economy that will more than offset the interest they will have to pay on the extra amounts they borrow. For some reason they think that if they borrow and spend a bit more then it’ll fix itself.
Years go by, decades even, and suddenly a situation has arisen where if the government was to attempt to repay this debt they would have to cut so much money off of the national budget that the entire economy would collapse.
Countries like the UK, USA, Germany and France owe 50%, 60%, 60% or 80% of their total gross national production (per year) in debt. Now bear in mind that the only part of that debt the government gets is the tax and you have governments who owe 3, 4, 5 maybe 10 times their annual income in debt! Add on the interest every year and even if these governments shaved 10% off of their annual budgets (and don’t even try to count how many hospitals would close, streets would go unswept or policemen would lose their jobs) and you’re looking at up to a HUNDRED years or more of problems to get their bank balances balanced!
If you went to the bank and said I’d like to borrow 10 times what I earn and pay it back in a hundred years you’d get laughed out of the door!
Of course a country goes on for longer than you or I can work for but that’s no excuse. In effect these governments are saying that you and I and our children and great great great grandchildren are fine with paying off this debt down the years. Except at no point do they stop and say … you know what? This is never going to get fixed. We have to stop this!
Because debt is increasing faster than the output of these countries the time it would take to balance them with any given level of saving is always increasing. As more time goes by more and more generations of people are being placed into indentured servitude to pay off what people many years before borrowed in order to fail to improve the strength of an ecomony! And of course because everyone’s doing it no one gains anything! If we all just stopped and made a new law – “All government debt is cancelled and government borrowing is now outlawed” – we’d all be JUST AS WELL OFF.
Why? Because our wealth as a nation is dependent on the relative strength of our economy and other economies. Since everyone is borrowing to get one up on the others we all stay the same, barring interventions that would happen anyway (like some entrepreneur comes along and does something awesome).
But someone has to be profiting from all this interest. So who is it?
Well in recent times it is true that the Chinese government has been profiting. By deliberately undervaluing its currency it has been able to sell vast amounts of its own goods around the world generating a surplus of cash for the government in taxes on those goods. Instead of borrowing, the Chinese, lone among all the governments of the world, were saving. Then it bought the debt of other countries. And now we pay them for all those loans.
Well not all. This was going on long before China became a player on the stage. When a government wants to borrow money it issues a bond. Essentially it issues stock certificates in future taxes that it receives. It promises to pay a certain percentage return on these certificates over a period of time. Maybe 2 or 5 or 10 or even 30 years. You pay the government $100 and in 20 years you get $200 back for example. So, apart from China who was buying these? For the most part it’s not other governments – they are all borrowing too although there are bound to be a few other dabblers buying up better interest rate debt than they were issuing – which only leaves one buyer category – individuals and companies.
All that money… it’s going into the pockets of the rich who can afford to buy long term investments.
Now some of you are thinking… but the rich pay higher taxes, so it’s ok! And you are so wrong. In the heyday of the contractor IT market I was exposed to a few tricks of the trade. Perfectly legal tax laws you can use to reduce your taxes. Earning about 100k? You might be in the 40%, 50% or 60% bracket, depending on your country, but your accountant will easily get your gross tax bill down to 25-30%. Earning 250k? Now you’re talking. If you pay over 15% you’re not with the right accountant. And when you start talking millions? Well now you’re offshore, you’re channeling funds left and right, you’re paying under 10% or you’re an exceptionally well principled person.
A quick recap.
Every year some of your taxes go to pay for interest on loans that your government took out based on the security that you would continue to pay taxes.
Your government used this money to grow your economy.
Every year it borrowed more to keep trying to grow the economy.
Every year there was less earned money and more borrowed money propping up your services, your police, your hospitals and so on.
Now the debt is so high that some of those borrowers are concerned they might not get their money back.
But at the same time those governments are so dependent on the borrowed money coming in that they cannot afford to stop borrowing!
Are you willing to accept the long term downturn in your services in order to eliminate your debt? You didn’t sign up for it but the government did on your behalf.
Are you willing to write to your MP or Senator and demand an end to this debt financed society? Do you really need that new nuclear submarine? Do you really need that new traffic calming scheme? Ultimately the money has been spent on buying your votes but at a cost that was never revealed to you. We will put more police on the streets! Well will open more hospitals! We will maintain our nuclear deterrent! Oh and we will be paying your taxes for the next 10 or 20 years towards it and have less to spend on the things we promised you!
Yes it would cause a major shift in wealth and a major shift in world power even but in 10 or 20 years your governments could get out of debt and start spending only the money it actually owned. Then everything would settle down and return to normal.
VN:F [1.9.3_1094]
Rating: 0.0/10 (0 votes cast)