The age of debt: the party's over

What is the reality of the current financial situation in the developed world? Nobody knows but we have to discuss it and in the end a few people in a position to do so have to make decisions which will profoundly affect the material prosperity and security of everyone on the planet. Even the developing world depends on these decisions.

Here are the major factors which world leaders, from Europe, USA and China currently have to take into account.

• Most banks in the world have been directly rescued from insolvency by tax payers in the major economies i.e. by government intervention; but the governments have bought bonds in the banks with money they do not have, i.e.'fictional money entered into financial computer systems.

• Since the governments which have rescued the banks are themselves heavily in debt the banks will fail again unless international pre-emptive action is taken. In such a scenario there will be no, or limited, protection for depositors, whether they be individuals or institutions.

• The major economies owing most money abroad per head of the population are the UK ($144,300), followed by the USA ($45,100) followed by the European Union ($27,900). These are approximate figures for last year.  These figures  are from the World Factbook (CIA), quoted in Wikipedia . See comments below.

• Within the eurozone’s 17 countries Greece, Spain, Portugal and Ireland have had serious debt problems. In recent months attention has also focused on Italy (spending deficit plus slow growth) and France (in that it has a lot of money tied up in the USA, which is more indebted than the eurozone).

• Economic growth in both the USA and Europe is slowing down and this affects their ability to generate wealth as a means of paying off debt. Even Germany’s economy has recently stalled (0.1% GDP growth in second quarter of 2011).

• China also has its problems. Its foreign market is declining, its population has growing inequalities and there are property bubbles in its major cities.  Its economy is still growing significantly (around 8% p.a.) but by much less than the world has been used to. Who will buy exports from the west?

• The USA’s economic well being is reliant upon a debt reduction programme, upon investment in productivity-enhancing infrastructure, training and education and upon economic export-led growth.

If the eurozone breaks up, i.e. if Germany is unable to lend money to weak, indebted countries within the eurozone it could set off a major world banking crisis beyond the control of any government or governments. Nobody other than some speculators have an interest in this, especially Britain with external debt per head exceeded only by Ireland (over $0.5 million), which fortunately is only a small country.

One plan for keeping the eurozone together is for it to issue eurobonds from the European Central Bank. Anyone owning eurobonds would be able go have them redeemed from the joint resources of the 17 eurozone members. This would require some hard thinking and talking by the eurozone members and most of the money would come from Germany; but Germany could have more to lose than any other state if the eurozone collapsed.  In return the eurozone countries would have to give up some of their economic sovereignty.

China is looking for a safe currency in which to store its sovereign wealth and which it can use for international trade. Traditionally this has been the US $. But the eurozone is bigger than the USA and has less debt per person. So China it is likely to be fully behind any attempt to keep the eurozone in tact.

 If Germany and China can't rescue the eurozone another possibility is that strict balancing of the books would be enshrined in the constitution of each eurozone state, if not every state in the European Union.There would have to be a long lead in time (10 years?) but if agreement can be reached on this it could be the best solution. If Europe remained stable it would help the USA and China sort out own their problems.

Feedback welcome.

See also

Reforming the world economy

John

Author, 2077 AD

cosmik.jo@gmail.com

UK debt and looting - not unrelated

The recent looting in the UK’s major cities is a result of parts  of UK society (to which I belong) having lost its grip on the real world. Not only the looters, but parts of a society which has a  responsibility to provide leadership, guidance, wisdom, hope and a sense of right and wrong to the young  : parents, teachers, religious leaders,  police, judiciary, sociologists, local authority leaders, politicians, the government,  the media, entertainers, artists, the literati and the intelligentsia. 

 The time honoured rules for a stable, prosperous society have been at least partly abandoned or ridiculed or adherred to only for fear of being caught out: honesty, loyalty, prudence, humility and restraint from extremes of greed or sensuality. It has happened countless times to societies throughout human history, and learning to adhere to them seems to be a painfully slow process, not helped in recent years, I maintain, by a denial of their divine origin.

But some bankers, financial service workers, economists and ordinary citizens have also been looting – plundering the economy in the belief they can get something for nothing.

A recent posting concerned the US debt mountain; but the UK is in even greater debt  which does not seem to have registered with the media, possibly because it is small compared to the USA and the eurozone.  

Although the UK government’s annual deficit is ‘only’ 10% of GDP (gross domestic product, the total money a nation spends on goods and services, serving as a measure of economic activty), compared with the US’s 12%, the British people have amassed a staggering amount of private debt per person by taking on excessively high mortgages from financial institutions which have in turn borrowed the money from foreign institutions.

Private UK citizens and the UK government together owe $144.3 k per person

to foreign creditors.  UK citizens have been spending money on foreign goods and property with abandon and appear to be living in a fantasy world. Only Ireland has a higher foreign debt per capita: $505 k. 

 The corresponding total debt per person values for other countries are

USA $45.1 k, Germany $57.8 k , China $0.3 k,  Greece $47.6 k  Japan  $19.1 k .

The average for the European Union is $27.9 k.

Greece’s total debt per capita is similar to the USA’s. Its anuual budget deficit (12% of GDP) and  accumulated government deficit (100% of GDP) are also similar.  But Greece is in trouble now because its economy is small, it has a low productivity, its GDP is falling fast, its currency is not a reserve currency (like the dollar)  and it investors fear it will exit the eurozone, voluntarily or otherwise.

The UK is in trouble, and in the long term it could be in worse trouble, because its banks are unable to finance business expansion even with government rescue at tax payers’ expense and because the Bank of England is having to buy bonds with money it does not have (quantitative easing) to keep banks solvent, thereby risking inflation. With UK house owners in debt to banks which are in debt to foreign banks there is a huge burden of debt making it difficult to invest in new technology, new skills and a rejuvenated infrastrucuture.

Other countries are having economic problems, including China, and we are all interconnected, but when you lose contact with the real world it has a habit of catching up with you.

Peace cannot be founded on illusions. So let’s get real.

Feedback welcome.

John

Author, 2077 AD

cosmik.jo@gmail.com

1984 revisited: here today? Some observations

See also

1984 revisited: collective post-modernism


In George Orwell’s book 1984 he depicts a totalitarian future (it was written in 1948) in which the Inner Party (2% of the population) governs for the sake of power alone and forces the Outer Party (13%) not only to submit, but to believe in, a reality dreamed up by the Party founders, who give themselves and their successors absolute power. Below the Outer Party are  the proles (short for proletariat, forming 85% of the population) and they are encouraged to be ignorant, absorbed in trivia or drunk, and are kept safely free of energy for revolt by exhausting them with work.

There are three areas: Oceania, Eurasia and Eastasia, all similar in power structure and governance. Throughout history the ruling clique has always lost power due to either conquest by foreigners or revolt.

The three territories are too big to be conquerable and each has most of the natural resources it needs – something which does not apply today because of the relentless growth in consumption; nevertheless the economic power blocs can see that military invasion would not benefit any nation because it would destroy the multinational trading system on which wealth is based.  

So the only possible loss of power in Orwell’s world, and arguably even in the actual world, is from revolt; but in 1984 revolt is impossible because of various stratagems and methods. These are listed below along with notes which I believe show how Orwell had foreseen certain aspects of today’s capitalist parliamentary democracies of the West.

• Restriction of thought.  Anybody in danger of proposing ideas outside the narrow, rigid framework imposed by the Inner Party is likely to be arrested and worked on by the Thought Police. Intellectual activity and creativity are also prevented by restricting the range of ideas and knowledge available. All history is written and rewritten by the Inner Party to suit its current requirements. Thankfully there is little evidence of this in the West but the same can’t be said of all parts of the world (e.g. Middle East, China, N. Korea). Even in the West there is an expectation of submission to the Market and fulfilment through material gain and status: anyone who thinks outside this matrix is often subject to  strong social pressure or marginalised.

• Restriction of vocabulary and grammar of the Outer Party. The Inner Party restricts the vocabulary and grammar of the majority  to curtail precision, flexibility and creativity of thought and discussion (Newspeak) . Dumbing down is happening in some sectors of western society (e.g. universities), although hopefully this is not deliberately engineered by an oligarchy seeking to maintain power. Witness younger people talking, twittering and emailing and note how often such words as ‘like’, ‘thingy’ and those ending in ‘wise’ crop up in a loose, undisciplined pattern of street lingo where finding the a word with the precise shade of meaning is not considered important.

• Stupefaction of the masses. The proles are kept exhausted by drudgery, diverted with trivia and befuddled with cheap gin made widely available. This prevents them becoming a threat (the Thought Police concentrate on the Inner Party rather than the proles, since the latter have few thoughts that could amount to a threat to the Inner Party's grip on power).  Today very strong pot is widely available, alcohol is increasingly bought and consumed by older children, TV soaps and talent shows have become addictive, most TV programs are presented in a manic or sensation-mongering style pandering to ever diminishing attention spans, a family has to work more hours to buy a house than 50 years ago, publicly funded education is under financial pressure and trade union power is continuing to decline. Formerly serious newspapers are peppered with sensational crime reports, celebrity gossip, entertainment news, competitions and anything to divert from serious discussion of ideas to upset the status quo. Am I paranoid?

• Hate sessions. In 1984 the Inner Party invents fictional public enemies (e.g. propaganda about whoever the Inner Party says is the current enemy) and vilifies them on ‘telescreens’ in 2-minute hate sessions, presumably in the belief that everyone needs something or someone to hate. Our press sometimes seem to have favourite hate targets (e.g. bankers, Big Brother villains, certain politicians, especially evil criminals) and this may be taking peoples’ eye off the root causes of social injustice, which could lead to social unrest.

• Conspiracy theories. Even the anti-hero of 1984 is fooled by the Inner Party into believing in an underground organisation, the Brotherhood, which is conspiring to topple the regime by revolt. Conspiracy theories today abound. E.g. there are those who believe all 6 Apollo missions were faked despite world media coverage (even by the Soviets) and many samples of lunar rock; the recently revived Flat Earth Society says the Earth is not really round -  it’s just been made to look that way by the authorities using digital image manipulation. How such theories originate is a mystery to me.  If it is from the holders of power it would be a good way of diverting attention from a genuine conspiracy to maintain power; if it is from the general population does it just mean it’s ‘cool’ to be cynical?.

• Denial of an objective reality. The founders of the Inner Party which controls society don’t believe in an objective reality and so feel able to make one up and impose it on the world without any kind of fear of going against a natural or divine order. Scientific progress is halted. There are sectors of our society who seek to impose their own world view on the rest of us (possibly political correctness is an example), having first destroyed people’s faith in an objective reality. Science could lose its impetus if faith in an objective reality with an underlying order is destroyed.

• Doublethink. Outer Party members are coerced into holding two contradictory beliefs at the same time, e.g. black is white, wrong is right. Certain sectors of society (including some scientists) deny that there is an objective reality. Hopefully, they will revise their view of the world before too much damage is done.

• Big Brother ‘infallibility’. All news and opinions under the Big Brother label are infallible. If BB makes a mistake the evidence is removed from history. Deletion of emails by corporations.  Government leaders in totalitarian countries (e.g. China, North Korea).

• Constant surveillance of the Outer Party by the Inner Party. Telescreens are everywhere and two-way. Closed circuit community TV? Use of Internet by governments and corporations to amass data on citizens.

We are a long way from the horrific world envisaged by Orwell writing in the shadow of Stalin but I have found it illuminating in trying to understand the reality of today's world.

John
Author, 2077 AD

 cosmik.jo@gmail.com