Do something now!
Wherever you look, debt seems to be the problem. It is said that governments borrow too much, companies borrow too much and individuals borrow too much. In short, it's all simply, well, too much.
Take the case of Greece and the eurozone. What is seen as the problem? Too much borrowing by Greek governments, which led to enormous debts that most experts believe will now never be paid back in full.
Or look at the recent election in Britain. One of the main topics of debate was how the various parties would reduce government borrowing over the coming five years. Personal borrowing has also increased dramatically in Britain, with consumers maxing out their credit cards, personal loans and overdrafts.
But if debt is so bad, then why not simply ban it? Shakespeare would have supported this course of action. After all, Polonius advised his son Laertes in Hamlet: "Neither a borrower nor a lender be." (See here for a critique of this advice.)
Someone who would like to ban governments from borrowing is the American economist Martin Armstrong, protagonist of the fascinating new documentary film The Forecaster.
Armstrong, who predicts a sovereign debt crash in October this year, sees government debt as a huge Ponzi scheme. Governments, he says, have no intention of paying down their national debt. Instead, they simply take outnew loans to pay off those that are maturing.
But wait a minute. Is debt really so evil? Fortunately, one can always rely on the British weekly newspaper The Economist for an alternative view to that presented by the media herd. In its latest issue, The Economist writes:
- "Debt has many wonderful qualities — allowing firms to invest and individuals to benefit today from tomorrow's income."
Indeed. But as The Economist points out in its cover story, governments encourage both firms and individuals to take out excessive debts by providing them with a subsidy to do so. This subsidy results from the fact that, in many countries, the interest on loans is tax-deductible for both firms and home buyers.
US debt subsidies alone, says The Economist, "cost the federal government over 2% of GDP — as much as it spends on all its policies to help the poor". The newspaper argues that the subsidies "have created a financial system that is prone to crises and biased against productive investment; they have reduced economic growth and worsened inequality".
Removing subsidies from any group is never easy, particularly when governments face re-election, as the French, German and US ones do over the next two years. But, as The Economist says, with current interest rates (and, therefore, the subsidies) so low, there "may never be a better chance" to take action. Don't hold your breath, though.
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