Quote:
Originally Posted by casstony
The disaster is already in place Greg - the debt already exists.
If a household has taken on excessive debt there are two possible soloutions: ignore the problem, get as many credit cards as you can and spend your way into bankruptcy or; live frugally, make do with what you have and get the debt paid down.
Nations are facing the same two choices and electing to create more debt instead of tightening their belts. If debt reaches an unsustainable level nations blow up just as surely as a household can.
Memory fails me but there was an American President who made a statement to the effect that unregulated bankers are the greatest potential enemy a nation might have.
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I totally agree with you Tony on all aspects.
It blows me away that these Nations honestly think lending someone who is already way underwater high interest loans is going to save them.
The viewpoint must be that they can produce their way out of it. So then they would have to plan to increase national production to compensate for the extra debt. I don't hear any talk like that though.
Its a bit like someone is drowning so you give them a 50kg bag of sand to hold onto.
I can't help but think this over lending to nations is a knowing plan.
They all fell for it. Just like it is very easy to fall for the offer of easy bank credit beyond your ability to pay, the basis of the GFC.
Part of the problem is their choices are so limited. The required actions to take are politically difficult/impossible. So it would start with a full disclosure of the financial position. You'd have to let everyone in the country know exactly where the nations finances stand clearly. Then a fresh election as really you need a fresh Govt and they can campaign on how they are going to really fix the situation. Then cutbacks so that the budget is in surplus on an immediate basis, then at the same time encourage production in the nation (how you do those 2 would be up to the creativity of the leaders, probably invest where you can in infrastructure where it will improve productivity most ), stop borrowing money. Pay of debt starting with the highest interest debt and working through it.
These Euro countries probably have to realise it could be a 25 year plan to get on top of the situation and to stop borrowing money and start creating surpluses.
In Australia in a way we have the seeds of a bad scene. Most pollies say we are in an economic boom (I know - if you're not a mining company that is not true) yet our budget is heavily in deficit. I also hear lots of times on the media how the Govt agreed to spend this amount on that and this amount on the other - its easy to spend money anyone can do that and be popular. Its hard to economise and create a surplus. Yet if we don't create a surplus now whilst there is a boom, what chance do we have if there is another economic shock?
You'd end up like one of those Lotto winners who finally wind up bankrupt. We'd all be wondering - what happened, we were making hand over fist in the mining boom - where did it all go?
For example how the hell did Japan, who 15-20 years ago was being touted as about to become the world's largest economy end up being #4 in the world and over 200% national debt?? Wow, they messed it up, it was in their hands at one point. They have the highest national debt.
The Western bankers fixed them up but good.
Greg.