Betting with Trillions: Prison of Debt Paralyzes West

[sysop]

Be it the United States or the European Union, most Western countries are so highly indebted today that the markets have a greater say in their policies than the people. Why are democratic countries so pathetic when it comes to managing their money sustainably?

http://www.spiegel.de/international/...-a-867404.html

[SHBasse]

It is difficult to get through with a understanding that differ widely from the "consensus reality”.
One can of cause try to get a warning published as a ”sensational statement” but then the serious people will not take it into consideration, and it will be forgotten within days.
The other option is to give a scientific explanation, but the social sciences are not very developed, and the existing scientific “schools” are inclined to dismiss anything that are not in accordance with their understanding and tradition.
The third option available is to start from scratch building up a functioning "theory of science" system, thereby demonstrating that it is possible to come up with viable predictions within the social sciences, and then apply this understanding to the science of History.
That is what I have done / published back in 1991 in the Danish treatise “Videnskaben, Historien og Fremtiden”, in english “Science, History and the Future”. (160 pages!)

www.unifiedscience.blogspot.com

Because my claim of a breakdown of our present old industrial economies were so “far out” (in 1991 – 1996 – 2007) nobody bothered reading the rather difficult reasoning that was needed in order to understand and especially accept a seemingly “negative” message! Furthermore said understanding also made it possible for me to come up with a solution to the problem – “The Idea Society”.
Regrettably considering the end of the industrialized epoch (for the old industrialized economies) and a new flowering beginning is to most people of today more sci-fi than science!
Here we are 21 years on and on the brink of a break down that eventually can lead to war between the "old industrialized countries" and the "newly industrialized countries" – an atomic war an electronic war - that might set the whole globe very far back.
A very sad possibility when there in fact exists the possibility of a transition to a flowering new societal structure!

http://unifiedscience2.blogspot.com/...ern-world.html

The above article sets (for the first time) focus on the possibility that the crisis is not just a “business as usual” economic crisis but something very different and frightening new.

http://unifiedscience2.blogspot.com/...-downturn.html

Søren H. Basse
Bornholm
Denmark

[powermeerkat]

In the Western world politicians/governments who want to reelected have to promise a pie-in-the sky to a greedy electorates who never ask :'WHERE'S THE MONEY COMING FROM?"


Since governments(unable to generate any weallth/jobs themselves) don't have any other monies besides thouse they manage to pull out of ther citizens' pockets - they have 2 options.

1. increase taxes (highly unpopular = no reelection)

2. increase DEFICITS.


And that's what most WELFARE states have been doing for decades.

Until, eventually, they've run out of OTHER PEOPLE's money.

As a result, today we're finally seeing a RECKONING DAY!

[KhanZubair]

Good to read thed etails. But to me writer also missed the crux of the matter. Unless interest and compound interest system which has totally infested all kinds of financial systems ( including capitalism) will not be replaced no remedy will prove effective in restoring the financial field. Setting aside the biases, hatred or differences why learned financial experts do not divert their attention at least to study the interest free financial system suggested by religion Islam. To my information Ahmadiyya Muslim Community has such details in a book titled, new world order" in different languages of the world. One can search for at "www.alislam.org"

[aaallison]

See de Toquville (The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.), de Maistre (Every country has the government it deserves.)et al. Simply put, politicians in democracies, whether left- or right-leaning inevitably buy reelection with money they don't have.

[Durgan]

The whole article may be epitomized as one global Ponzi Scheme.

Taking on debt by governments was/is considered as inconsequential by relying on growth to cover the shortfall.Growth is at a standstill and the recession has made income less, so the pundits have no choice except to feed the monster adversely increasing the necessity for more borrowing.

Consumers are blindingly copying the same erroneous procedure thus increasing debt more. How long can the call of the piper be ignored? The consequences are obvious in many countries today. Misery for many and eventually social upheavals.

For the uninitiated:
A Ponzi scheme is a investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.

If carried out by individuals or an investment house such procedure is considered a major criminal operation. But practised by government it is considered a legitimate financial vehicle. The sheeple are being hook winked and will eventually have to pay the price.

Durgan

[bluesky123]

There was never a punishment for not balancing the budget. That's where the snowballing debt problem started. I admire Angela Merkel tremendously and I agree with most of her policies. However even in the most prosperous age in German history, the German government has not produced a balanced budget. Even before this global recession, Germany always ran budget deficits. If the strongest industrial manufacturer in the world cannot produce a balanced budget, then there is no hope for all the other countries.

This is the core of the problem: every politician running for office is spending more money than the city/state/country is earning in revenues to keep the public happy and to win the next election. As long as politicians can spend like this without ANY repercussions, debts will grow. Every city/state/federal government has a budget process. When did you last see that any of these politicians start with the next year's budget by saying "OK, our FIRST priority is to pay down our debt by 3%. AFTER we have paid down our debt by 3%, we will see what is left for all the other budgetary requirements." Paying down debt is never a high priority, so paying down debt is never included in the budgeting process and hence it never happens.

Every country with high debt has to produce a balanced budget and lay out a 20 year plan to reduce debt to GDP ratios to a sustainable 70% or better. That's the only way.

[Wayfarer]

Originally Posted by sysop

Why are democratic countries so pathetic when it comes to managing their money sustainably?

http://www.spiegel.de/international/...-a-867404.html

I will tell you why most countries cannot stay out of debilitating debt. They do not have the political freedom to tax instead of borrow. The super rich have too much cash on their hands, especially at the end of the boom part of the business cycle. This cash needs to be used to stimulate the economy. The money gets borrowed and spent, but not taxed and spent. There isn't much need to explain why it is borrowed instead of taxed, but it is worth mentioning that journalists cannot write about taxing the rich. They have a thousand ways to analyze the debt problem but no way to explain the simple equation between borrowing, debt, and taxation. If a member of the public brings up the issue, the journalist and politician explain how the super rich could not possibly have enough money to put a dent in the debt problem, leaving the middle class to pay the tax, they say. But the middle class is already paying for everything anyway so that is the end of the discussion, at least for now, until the system squeezes so hard that....

[grdedalos]

Personally I welcome the german friends in the structural discussion about Euro, Eurozone and global economy in general, a discussion that 3 years now was denied by the german leadership! when these kind of discussions started when the problem of the bank sector seemed to affect first the peripheral countries. Specialists and public opinion extensively examined the subject and reached to conclusions and potential solutions on it. Of course the citizens of a country start to deal with a situation when they are in front of the problem and not in advance with a philosophical mood.
Despite it's very elegant approach I think that the writer misses the main feature for the public debt. Some thought on a first component of the issue: Let's take out the bank sector for a moment and wonder how, why and by whom are the states lend their money. Speaking roughly one channel is the private lending, a second one is the public institutions of the other countries, something that is more rare nowadays, and the third one by your own central bank (issuing money).
It is very interesting to see the US unification. The key is the last-refuge lender, FED in this case: every state has the ability to lend money from the central bank. In that case states like California, with enormous debt, can never go bankrupt and/or reduced the physical presence of their state (close public schools, police, stop maintenance work etc). Treasury and FED determine the way that these money are going to be found making a mix of issued, external lending etc). Our mixture has lack of one of the main components (issuing money and state funding) making totally incomplete in such a degree that it seems impossible to survive. Starting now discussions about Eurobonds, common depth,unification and democratic control of the union is too late to have benefit; though is the only option for the moment (Schauble tactic of postponing the problem till the German elections and focusing it only to Greece is out of any rational, I am not so optimist that the next german election will be in an EU environment).
But defining which monetary policy to follow is not so simple and has to do with the general orientation of the economy. Think of a scenario that a state is issuing all the money it needs. An economy like this is more a soviet one with the state actually absorbing all the funds of the economy, suffer of devaluation with its positive and negative aspects and by it's external commerce (of course there is the scenario that the others are issuing too this way). But from the other hand issuing the money with interest 0.7% by the central bank giving them to private banks and lend the states with 5% or 3% is not a fruitful/moral practice either and actually you are offering people and countries to the owners of these organizations. Typically you can sit and doing nothing, just taking a loan and relenting it to the states; of course reality (competition, cost of risk) affect the picture though the main concept remains valid. The only way to loose money is in the case of a debt-crisis and under the condition that there will be no or minimum support; in reality the risk is negligible. In the case of Greece, for example, EU took care by passing a significant amount to the public sectors including the german one, Merkel gave a titanic fight to get it and of course this is going to cost tremendously to the tax payer from now on. I don't have the intention to over-react but till now the programs where offering almost profit to the German citizens, but now you will have to deal with huge haircutting, probably for all the rescued countries, covering of the holes by the state budget. The "rescued countries" face the worst consequences: their economy shrinks severely and in depth in time making necessary for more haircuts and rescuing of the lender's bank sector. Only one situation exists where both the looser and winner are ending up hurt.... imperialism, mass destruction and dark perspectives.
In order to close my lengthy post, as summary: 1) The concep of the state debt is somewhat arbitrary and it is based on our choice of connection between the states and their central banks, 2) monetary policy is a mixture that is important to be defined, in eurozone it was defined in 90s... 3) The situation in EU is totally non-survival since ECB is prohibited to lend money to the states 4) The moral dimension of the banking resuing 5) the lack of future in EU since german elections destroy any perspective for immediate solutions, 6) unfortunately for the "northern" people a heavy taxation and deep recession is in front of them too and we haven't consider yet the consequences of the bank-crisis
A New Superpower free from all the above restriction has been arise in the global scene. Evolution!

[BTraven]

It's not Schmidt's fault that many countries as well as their citizen are so much indebted, of course, therefore the author is completely wrong to start with his claim that the end of fixed exchange rates caused the dilemma we have to endure at the moment. That crisis is totally self-inflicted because it was thought that people whose income has been stagnating for more than 20 years could compensate the loss (inflation) by taking up loans to keep up their living standard. The rest is history. Reality is by far much less complicated as the author thinks.