It’s not just us…

Other governments are also going into debt at a record pace:

Borrowing has soared as central banks suppress benchmark interest rates to spur growth after the U.S. subprime mortgage market collapsed and Lehman Brothers Holdings Inc.’s bankruptcy sent the world into its worst financial crisis since the Great Depression.  Yields on all types of bonds, from governments to corporates and mortgages, average about 2 percent, down from more than 4.8 percent in 2007, according to the Bank of America Merrill Lynch Global Broad Market Index.

“Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS. The organization is owned by 60 central banks and hosts the Basel Committee on Banking Supervision, a group of regulators and central bankers that sets global capital standards.

As financial planners will tell you, there is ‘good debt’ and ‘bad debt’.  ‘Good debt’ is incurred when you borrow and use the money on something that will give you a return in the future that will allow you to pay back the debt.  ‘Bad debt’ is incurred when you borrow money and use that money to go to Vegas and put it all on black or red, which is essentially what governments are doing with this borrowed money.

Governments aren’t using this borrowed money to fix roads, educate their populations, or defend their currencies against attacks in the current Currency Wars.  They are spending this money on food stamps, welfare programs, and bailouts of their criminal buddies.  Guess who they are going to ask for the money from seize the money from when it is time to repay these loans?

And guess what?  All of these bastards are printing money to help keep the current foreign exchange rates stable (more or less).  This is not a new phenomena, as Adam Smith observed the same idiocy in 1776:

The progress of the enormous debts which at present oppress, and will in the long-run probably ruin, all the great nations of Europe, has been pretty uniform. Nations, like private men, have generally begun to borrow upon what may be called personal credit, without assigning or mortgaging any particular fund for the payment of the debt; and when this resource has failed them, they have gone on to borrow upon assignments or mortgages of particular funds.

***

When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.

This is where we find ourselves at this moment.  There is simply no way to repay $100 trillion in borrowed money.  But that doesn’t mean that governments won’t try.

The raising of the denomination of the coin has been the most usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment.

Smith is describing the creation of more fiat currency, which is then used to pay down the debt.  The result is inflation and higher prices for everything.

This is the Keynesian solution to economic problems.  Government should borrow and spend, and the central bank should increase the money supply.  In effect, the government tries to ‘spend its way to prosperity’.  Too bad that Keynes didn’t know any economics.  If he did, he would have known that these policy prescriptions only make things worse until the economy finally collapses.

 

 

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Categories: Banksters, Borrowing, Debt, Inflation, Keynesian Economics, National Debt

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