Debts don’t disappear without a great clatter

The big difference between the national debts of the advanced countries prior to the 2008 Crisis and now is that there is now no chance of their ever being paid off. Before 2008 there was conceived to be a chance by economists and treasury departments.

All that needed to be done, they said, was for the advanced countries to raise the economic growth rate above about 3.5% per annum and the debts would peel away every year and be entirely gone within a decade or two.

In reality there was little chance in the 10 or 15 years before 2008 because economic growth rates of the advanced countries had already declined every year to less than 2% — the threshold needed. During 2009 and 2010 with the (temporary) economic bounce-up — at least by China and some of the Second and Third World countries — there might have conceived to be a chance.

But no longer. National debts of the advanced countries are growing again — nowadays in leaps and bounds because governments, via their tame central banks, are releasing huge tranches of money, euphemistically known as Quantitative Easing. In reality, the extra few $ trillion or so are not going to consumers for them to spend it and get the economic machine going again but to the already-rich who are delighted to borrow it at absurdly low interest rates.

Apart from China probably having just a few more years of net exporting, and thus trade surpluses, the present world economic growth rate of about 1.5% — and that’s probably a cooked figure anyhow — it’s probably nearer 0.5% — will finally go down to zero. If we’re lucky. There’s only one way out of the growing mess. This is debt forgiveness.

More easily said than done. The trouble with this is that the worst offenders — such as America — will be the greatest beneficiaries. Those with large lent-out trade surpluses — China, Japan, Germany, Saudi Arabia and the Emirates — will see them vanish and thus be penalised. In short it will be monetary madness.

What will initiate the next catastrophe? It’s unlikely to be the large commercial banks — as in 2008 — because governments have a grip on them now. It won’t be advanced governments per se — that would involve too much loss of face — but more likely one of the hedge funds — one of the monsters which make up the world ‘shadow economy’ that, quite legally, is already larger then the governmental one.

Well, we’ll have to see, won’t we? Debts never disappear all by themselves without a great clatter that causes a lot of human suffering.

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