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Kick the can

To The Editor,

The G7, the great nations, will gather this August; all touted as rich. Yet these countries are among the most indebted in the world. If being debt-free had value, East Timor would be rich.

When a household comes up short on its budget and is consistently borrowing to make ends meet, does that make the family richer? I say not. Yet governments operate in this manner to the point where none of the G7 members have any possible hope of ever paying off the creditors; their only options are to keep central banks’ interest rate at near zero, (in some cases negative), steady 2% inflation, and beating the bushes for new methods of getting more out of citizens. They must somehow lever increasing amounts of debt with decreasing resources to keep alive the facade of being rich.
In politics this policy is known as ‘kicking the can’. Each new round of leaders hopes they can kick that debt load far enough down the road to clear their term. In the financial world, borrowing from one investor to pay off another is called a Ponzi scheme. In either case, it all fine works until it doesn’t. Eventually the payouts become larger than income. Its a matter of time.

The combined debt of the world is estimated to be about 250 trillion dollars with some analysts placing the number far higher when taking unsecured debt such as pension and health care liabilities into account. The bulk of that number is owed by members of the G7 who all have similar, serious problems. The average age of these nations’ citizens is getting older while birth rates fall to record lows. As the debts rise, the load is being carried by an ever-aging, shrinking populations of taxpayers.

Inflation has wiped out the purchasing power of working people’s wages to the point where $2.50 per hour in 1969 had the same value as $22.50 today. Canadian citizens’ average household debt is about 175% of disposable income, with those in lower brackets owing in excess of 300%. The GDP of all G7 members rely on their consumers buying more and more, but the ability to purchase is drying up. Raising mandatory minimum wages only exasperates the situation with the increase in dollars being negated by higher inflation and taxes. Corporations can drop prices to encourage consumers but that leads to more borrowing, corporate and personal.

A line chart of any of the G7 countries’ debt load shows parabolic: basically vertical. A much better example of “hockey stick” than Micheal Mann’s graph of global warming. While calculating the temperature of the world twenty years forward relies on computer models, calculating the debt load increase is based on raw mathematics and the power of compounding numbers. That rise is not sustainable. It mimics Venezuela’s inflation chart.

Yet they will meet in France and talk about equality and carbon and new ways of borrowing to save the planet. Meanwhile, that can they once again have to kick looms like an oil drum teetering on an uphill slope.

Gordon Fraser
Champlain

 

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