AnssiH Posted November 30, 2014 Report Share Posted November 30, 2014 I'm sure many of you have wondered what's this deal with ballooning government debts all over the world. Here you can see the last 10 years; http://www.economist.com/content/global_debt_clock Or longer timespan of US debt; http://thf_media.s3.amazonaws.com/2013/Visuals%20for%202013%20Fed%20Spending%20Numbers/CP-fed-spending-numbers-2013-page-5-chart-1_HIGHRES.jpg I find it peculiar that people defend ballooning government debts as normal order of business, even though it is quite recent development. I also find it peculiar that the defenses I can find never really touch the real problem behind government debts. It seems to be that everyone defending the debt system is only focused onto the business of their own country, and not thinking about this phenomena as a global issue. It's pretty simple when you look at this from a game theoretical point of view; where each member in the game is looking for nothing but an increase in its own rewards. There seems to be a pretty obvious prisoner's dilemma that no one has control over. First, we have a currency that is not based on any resource. Instead, the amount of currency in the economy can be freely adjusted, so to adjust the prices of services and goods. At least that's the principle. To simplify the mechanism, imagine two countries and one bank operating with this currency. The governments are locked into a trade competition. They are both building and maintaining their infrastructure by collecting taxes, and the faster their development is, the more they can increase their own competitive edge. So, if the average tax rate of the country is 25%, that means that on average every working citizen is working for building the infrastructure three months of each year. The tax rate can of course only be so much, before it becomes detrimental to the development of the country. However, the bank is allowed to push as much money into the system as the governments want to borrow, since the currency is not based on anything. So the bank just borrows as much as it wants or dares, with any interest rate it sees fit. Let's say government A decides to borrow some money. For that government this is effectively just a contract where it promises future tax revenue for the bank; it promises its own citizens will work for the bank such and such periods of time. The increased money pool will affect the prices, but more importantly now government A holds a larger percentage of the entire money pool, and it can buy more services and goods than government B. In other words, government B cannot operate as effectively anymore, unless it also borrows money from the bank. Under normal operations, the benefits gained this way may not be large enough to throw the system off balance, but it is notable that during wartime the benefits are massive, and in that circumstance countries are typically forced to deal with massive debts, also placing pressure to all the other countries to borrow after the war. Add more countries into the same game, and you can see each one is on its own forced to borrow money, to stay afloat in the economy, especially during war efforts. Plus then you get into a situation where poor countries get poorer because they cannot borrow as cheaply as the rich ones, which is also merely created by the fact that multiple banks can borrow money to a single country, making defaults possible, and creating a risk for the banks. Everybody defends government debt by focusing onto one country; on the fact that they have to borrow money in order to operate effectively. Forgetting that they were forced to borrow the money because other players in the game have pushed the prices up with debt also; it has been in their own best interest to do so. Especially if there has been war efforts. When the debts are payed back, the original money disappears, but the interests are pocketed as profit by the owners of the bank. When every country is forced to operate with debt with interest, it just means higher and higher percentage of the whole economy is drifting into the pockets of the private owners of the banks, meaning everyone else just keeps losing their purchasing power. I find it extremely remarkable that we are now locked into a system where entire countries are running the risk of defaulting to privately held banks. These banks effectively control the interest rate of a country, in a way where raising interests can cause the entire infrastructure of the country to be taken away from the citizens, and handed over to private owners. And at the same time, as what happened in Greece, all the other governments in the same trade economy are pushed to bail out the troubled government, by borrowing more money... ...from the very same banks. Is there any reasonable defense to keeping up this type of system, or is it being ran just because of short-sightedness of all the players in the game? And more importantly, what are the alternatives? What kinds of mechanisms could keep up trade in fair manner? It would be interesting to hear if there are any thoughts on this issue. Quote Link to comment Share on other sites More sharing options...
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