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Debt: The Awaiting Crisis
 

Photo: SXC

MIND MAGAZINE |The United States of America are $ 3,5 trillion indebted. And it’s not finished yet. The most economically powerful country in the world, and by far, is currently going down, and runs on a very, very big Master Card. The government plans to run on deficit of a couple of years, to pay for it’s very copious campaign in Iraq. The deficit for 2005 is budgeted at about $521 billion dollars, including a 7% hike in homeland security and military spending.

Credit is dangerous: it means that someday, somehow, the money is going to be paid back to its rightful owner. Currently, the U.S. government has a privilege, if it needs money, it can simply issue bonds, therefore creating debt and so money. You see, as there is more and more need for new money, it is created by the government. Banks issue debts and need huge amounts of cash to do this. The Central Bank decides whether or not to issue or not money, this is a very precise occupation. But confidence in the US dollar is declining and investors are less and less likely to buy US. Government bonds or simply U.S. dollars.

42% of US Treasury bonds are owned by non-American interests, and 18% of stock value in the US is owned by non-American interests too. Money savings, that is the quantity of money currently in bank accounts, has gone down to 1,6% of total money in circulation from its 6% average in the 90’s. This is money that cannot be invested in the country or abroad. When bonds will come to their limit date, will foreigners and US citizens really be paid back? The situation is getting sloppy even more and the government might run out of cash. That means that bonds and other marketable debts might not be paid back. No one can forecast what could really happen. Something’s sure however, the whole occident is dependent on exportations to US, such as Canada and Great Britain. Debt levels has also gone up to a big 7,6 trillion dollars(72% of US GDP) in private industries. Yet less money to spend on investments and buying imports. And paying more interests means having less money available for spending and investment.
 

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The rest of the world is also concerned by this matter. Third-World countries have heavy debts. One recent survey estimates them to $2 trillion! That means less money to invest in schools, hospital and human development. Much of the money loaned to these countries has been lost in bribery to leaders, wars and bad investments and no real progresses have been noticed. Fewer schools and less hospitals mean a somewhat grey future for every country. Even worst is the current conditions of living in underdeveloped countries. Let’s face it, the term “developing countries” is not really good. In Peru, $2 billion were spent paying interests in 2000. 60% of government spending in Honduras is for paying interests, 12% for education. This is gushing money spent to pay back occidentals who don’t really need the money or could redistribute it freely. Moreover, all countries on Earth owe money! Occident’s partly paying its interests with the ones it collects. The IMF and the World Bank have tried to help in the last years, but the answer to most credit demands was: “Reduce government services and we’ll loan you.” Senegal was forced to reduce government services by 30% over the last years, due to IMF pressures. What’s the point at respecting your engagements if you can not sustain minimum living standards?

The whole world is a very big credit card. If the biggest player of all might not be able to face its obligations later, what will happen next? After all, if the US goes bad, Europe and North America are going bad! And if Hong Kong’s banks are doing bad, Asia as a whole is going down. Everyone’s dependent on everyone. Globalization has achieved interdependence and linkage through almost impossibly imaginable ways. If a company bankrupts over there, all of its clients and suppliers throughout the country or even the world are losing business. And if someone’s not able to pay its loans, that means less cash for the payee…

Damocles’ sword is just over our heads. If money gotten from loans is not invested properly, the interest and capital must still be paid back, and that is yet less money for investments inside a country’s borders. For a company, that means bankrupt and hundreds, maybe thousands of lives affected. For a country, count millions of lives affected. This is serious and even developed countries face a terrible danger. Countries, such as Canada, which has a debt of CAD $557 billion have started paying their own debts. But if the US goes bad, Canada loses everywhere: jobs, money, everything.

Debt repayment will conflict with all of the future concerns of all countries. One of the obvious problems the coming years will bring is the environment issue, but because of the growing national debts, countries simply might not afford solutions to fix the planet.


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