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March 3, 2015
from
WashingtonsBlog
Website
The Guardian
reports that global debt has grown by $57 trillion dollars - to
$199 trillion dollars -
since the 2008 financial crisis.
How much is that? It's a big number... but what does it actually mean?
The Guardian notes that global debt is
now more than twice the size of the entire global
economy:
Total debt as a share of GDP stood
at 286% in the second
quarter of 2014 compared with 269% in the fourth quarter of
2007.
(That's more than 2.8 times the size of
the world economy).
And it will only keep getting worse:
Government debt-to-GDP ratios will
to continue to rise over the
next five years in a number of countries including
Japan, the US and most European countries...
While the mainstream press talks about
"deleveraging", the fact is that many households are going deeper
into debt:
Household debt is "reaching new peaks".
Only in Ireland,
Spain, the UK and the US have households deleveraged.
According to the study,
not only have household
debt-to-income ratios continued to rise, they now actually
exceed the peak
levels in the
crisis countries before 2008 in some cases,
including advanced economies such Australia, Canada and Denmark.
Why Should We Care?
It has been known for a very long time
that
debt grows exponentially, while economies only grow in an
s-curve.
As such, debt will always overtake
prosperity unless measures are taken to reduce it.
In 2008, the most prestigious financial
agency in the world - the Bank for International Settlements (BIS),
often described as the "central bank for central banks" -
said that failing to force
companies to write off bad debts "will only make things worse".
Moreover:
The recent edition of the Geneva
report - "an
annual assessment informed by a top drawer conference of
leading decision makers and economic thinkers" - finds that
the "poisonous combination"
of spiraling debts and low growth could trigger another crisis.
The report also notes:
Contrary to widely held beliefs, the world
has not yet begun to de-lever and the global debt to GDP
ratio is still growing,
breaking new highs.
And as the Telegraph
put it last year:
On a global level,
growth is
being steadily drowned under a rising tide of debt,
threatening renewed financial crisis, a continued squeeze to
living standards, and eventual mass default.
Top economists say that
Iceland did it right… and everyone else is doing it wrong.
Here's why:
Arni Pall Arnason, 44, Iceland's
minister of economic affairs, says
the decision to make debt
holders share the pain saved the country's future.
Even the IMF
points to
Iceland
as a model for debt write-offs as
a way out of its economic slump.
And - despite the fact that mainstream
"neoclassical" economists
don't believe that debt even "exists" as a force that acts on
the economy - many economists note that high levels of private
debt
cause depressions.
Indeed, an economics professor who bases
his analysis on computer models says
we'll have,
"a never-ending depression unless we
repudiate the debt, which never should have been extended in the
first place".
Well-known economist Michael Hudson
agrees (starting around 2:16 into below video):
If the problem that is grinding the
economy to a halt is too much debt, and
if no one in the
government - in either party - is looking at solving the debt
problem, then... we're going to go into a depression as far as
the eye can see.
The Secret of OZ
February 2011
This
version finally cuts several bogus quotes which
have festered in the monetary reform literature
for decades.
The world economy is doomed to spiral downwards
until we do 2 things: outlaw government
borrowing and outlaw fractional reserve lending.
Banks
should only be allowed to lend out money they
actually have and nations do not have to run up
a "National Debt".
Remember:
It's not what backs the money, it's who
controls its quantity.
And high levels of debt lead to war.
For example, Martin Armstrong argued that war plans
against Syria
are really about
debt and spending:
The Syrian mess seems to have people
lining up on Capital Hill when sources there say the phone calls
coming in are overwhelmingly against any action.
The politicians are ignoring the
people entirely.
This suggests there is indeed a
secret agenda to achieve a goal outside the discussion box. That
is most like the debt problem
and a war is necessary to relieve the pressure to curtail
spending.
Billionaire investor Jim Rogers
agrees:
"Add
debt, the
situation gets worse, and eventually it just collapses.
Then everybody is looking for
scapegoats. Politicians blame foreigners, and we're in World War
II or World War whatever."
So do
many other top economic advisers.
The Wrong Prescription
The central banks' central bank
warned in 2008 that bailouts of the big banks would create
sovereign debt crises. That is exactly what has happened.
Remember, it is not the people or Main
Street who are getting bailed out…
it is the giant banks.
A study of 124 banking crises by the
International Monetary Fund (IMF)
found that
propping up banks which are only pretending to be
solvent - instead of forcing them to write off their bad debt -
often leads to austerity:
Existing empirical research
has shown that providing assistance to banks and their borrowers
can be counterproductive, resulting in increased losses to
banks, which often abuse forbearance to take unproductive risks
at government expense.
The typical result of
forbearance
is a deeper hole in the net worth of banks,
crippling tax burdens to finance bank bailouts, and even more
severe credit supply contraction and economic decline than would
have occurred in the absence of forbearance.
Cross-country analysis to date also
shows that accommodative policy measures (such as substantial
liquidity support, explicit government guarantee on financial
institutions' liabilities and forbearance from prudential
regulations) tend to be fiscally costly and that these
particular policies do not necessarily accelerate the speed of
economic recovery.
***
All too often, central banks
privilege stability over cost in the heat of the containment
phase: if so, they may too liberally extend loans to an illiquid
bank which is almost certain to prove insolvent anyway.
Also, closure of a nonviable bank is
often delayed for too long, even when there are clear signs of
insolvency (Lindgren, 2003).
Since bank closures face many
obstacles,
there is a tendency to rely instead on blanket
government guarantees which, if the government's fiscal and
political position makes them credible, can work albeit at the
cost of placing the burden on the budget, typically squeezing
future provision of needed public services.
In other words, the "stimulus" to the
banks blows up the budget, "squeezing" public services through
austerity.
But instead of throwing trillions at the
big banks, we could provide stimulus to Main Street. It would
work much better at stimulating the economy by wiping out some
of the little guy's debt.
Instead of imposing
draconian austerity, we could
stop handouts to the big banks, stop getting into imperial military
adventures and stop incurring unnecessary interest costs (and
see
this).
And bondholders - rather than the little
guy -
must be forced to take a haircut.
The Solution Has Been Known For Over 4,000 Years
Periodic debt forgiveness - or debt
"jubilees" - were a
basic part of the original Jewish, Christian, Babylonian and
Sumerian cultures. Indeed, this tradition goes back over 4,000
years…
In fact, many of the major religions
were founded on the concept of debt forgiveness.
For example,
Matthew 6:12 says:
And forgive us our debts, as we
forgive our debtors.
Anthropologist David Graeber,
author of "Debt: The First 5,000 Years",
says:
If you look at the history of world
religions, of social movements what you find is for much of
world history what is sacred is
not debt, but the ability to make debt disappear to forgive it
and that's where concepts of redemption originally come from.
Freedom from debt is also the basis of
liberty…
After all, the first recorded word for
"freedom" in any human language is the word for
freedom from debt.
Both founding father Thomas Jefferson
and the father of free market economics Adam Smith warned that
every generation should pay off its own debts. And this a very
timely and current issue…
Respected economic writer Ambrose
Evans-Pritchard
wrote in 2009:
In the end, the only way out of all
this global debt may prove to be a Biblical debt Jubilee.
Well-known economist Nouriel Roubini
writes in the Financial Times:
Since this is a crisis of solvency
as well as liquidity, orderly debt restructuring must
begin. This means across the board reduction on the
mortgage debt for the roughly half of America's households that
are underwater ….
Martin Armstrong
notes:
"At the end of every seven years you shall grant
a remission of debts."
Deuteronomy 15:1, which is the manner of remission where every
creditor shall release what he has loaned to his neighbor.
***
Historically, society is destroyed by debt every
time.
***
Absolutely no nation has ever
survived a debt crisis.
***
So should we have a debt forgiveness
every 7 years? Perhaps that prevents the crash and burn in the
[business cycle]. Interesting correlation. Could this be an
ancient mechanism to lower the volatility of the… business
cycle?... Interesting wisdom indeed.
Sprott's Jeff Nielsen
writes:
As indicated in the chart below
(originally produced at Zero Hedge)... Membership in the
international Bankruptcy Club has soared to roughly 40 nations.
Canada's previous "debt crisis"
would no longer even earn it a place in the world's "top-40" of
most-indebted nations today.
***
In collective terms, the unequivocal
proof that these regimes must (immediately) declare Debt Jubilee
comes in many forms.
We start with the fact that none of
the members of the Bankruptcy Club ever manage to
improve their fiscal standing (i.e. lessen their level of
obvious insolvency).
While there may be occasional,
annual "blips" in the economic self-destruction of these
nations; examine the balance sheet of any member of the
Bankruptcy Club over five-year increments, and their fiscal
position is always worse.
***
Debt Jubilee is a long-standing
economic "tradition" of our species, as financial mismanagement
(at the national level) is an endemic problem of our species,
irrespective of the historical era, or the system of government.
Arithmetic is arithmetic. Continuing
to (attempt to) "sustain" the unsustainable is at best economic
suicide, at worst economic treason.
Moreover, our own sovereign debts
are fraudulent, on several different levels. Wiping away these
gargantuan debts, and restoring solvency to the Western world is
not only economically necessary and morally imperative, it is
legally justifiable. The "legal remedy" for fraud is a very
simple one: the fraudulent transactions (i.e. our debts and
accumulated interest) are instantly rendered null-and-void.
For injured parties with "clean
hands"; they can seek restitution for any losses
through the branch of law known as Equity. Needless to say there
would not be any bankers standing in that line.
Clearly if Western governments were
'merely' drowning in debt-to-GDP ratios of roughly 100%, then
they could still argue that attempting to manage these
debt-loads was legitimate rather than treasonous.
However, Germany's government
(debt-to-GDP of 188%) can no longer make that claim.
Nor can:
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(221%)
(225%)
(233%)
(238%)
(244%)
(252%)
(259%)
(280%)
(290%)
(302%)
(313%)
(325%)
(327%)
(358%)
(390%)
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***
When Western debt-levels began
soaring past the point-of-no-return at the beginning of this
millennium; it suggested that the West (and thus the
whole global economy) was due for the latest Debt Jubilee.
When these already-excessive debt
levels exploded to a ludicrous level, following the so-called
"bail-outs" (to these same bankers) from the Crash of '08; this
required an immediate Debt Jubilee.
However, the insane/treasonous
numbers in the previous, current chart shout out an even simpler
message: we demand Debt Jubilee.
Indeed, there is a long-standing legal
principle that people
should not have to repay their government's debt to the extent that
it is incurred to launch aggressive wars or to oppress the people…
what is called "odious debt".
If a debt jubilee is not voluntarily
granted, people may
very well repudiate their debts… which would lead to chaos.
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