Theories abound about the end of days. To each and every thing there is a beginning and an end. Hollywood loves to kill us off on screen. We love to go and see how it all ends. Have you seen the movie about debt bringing our civilization to an end? No? Debt bringing it all crashing down? You know the one where there is a world wide drought, and we decide not to sell the Chinese grain on credit because they have too much debt. And so they decide to take it by force? Not exciting but quite probable.
Far fetched? Not really. The Romans lost control of their finances through debt. When the people of Italy realized they could elect politicians who had promised them handouts from the public treasury it was a self fulfilling curse that lead to the end. Debt is everywhere. If you have it, it is bad. If you have a lot it's a choke hold that one can't get away from. I want to focus on several facets of debt and how it affects us.
Greece. The focus has been on Greece and their debt recently. Greece has more debt now than their population and government could ever hope to pay back some economists report. It's a small country, little in the way of industry and 50% of their population is on the government payroll! It's protectionist, steeped in a history of singularity, and little outside investment or in fluence is allowed. They simply don't have enough population that could be taxed or a economy large enough to pay back their debt. And tourism is in the tank. So what does the European Union, through the International Monetary Fund (IMF) do? Give them more loans they can't repay! Those loans come with a price tag Greece can't afford, Austerity Measures. Hence the riots and protests we've seen including an attempt to change their government leadership. Greece will soon default on their loans to the World. It is inevitable. More European countries will follow. It could result in the end of the Euro as a currency. America's focus on the Greek crisis is from the perspective of what will happen in the USA if we don't control our debt here.
US Debt. Our Annual Budget Deficit has tripled since 2008. Our National Debt is up by 30% or $4 trillion dollars in the same time. We now owe $14 Trillion dollars. We are in a runaway debt situation that's about 10-15 years behind Greece. Austerity Measures, like what the Greeks had to accept to qualify for their new bailouts, are a possibility here. What are they? Unimaginable tax increases of 100% or more, layoffs on the scale of 50% of the government workforce, and selling of our national assets and treasures. Our Congress is attempting to make a few tough choices today. Frankly, they are a DROP in the bucket to what we really face in the future. It's time to start figuring out how to pay the bill in America.
Personal Debt. If you have it these days, you can't get any more. Most don't want what they have, let alone get any more. But if you wanted to borrow, you couldn't in this new world of credit. If you have a lot of debt now, you won't be borrowing for the next decade. You can't get rid of it except for two ways. Pay it or default on it. Debt is stifling the US economic recovery, preventing banks from lending and restarting our economy due to tighter regulations on acceptable levels of debt to qualify for a loan. Consumers account for 70% of the US economy. And when they can't borrow, the economy falters.
Moral Debt. Yes, that too. It seems to be acceptable now not honor a contract, an agreement, a loan. If things don't work out, walk away, and in a few years try again. Moral hazard is the biggest risk to the timeless historical values and ideals that developed in the middle ages or earlier, creating the basic principals that shaped modern business and finance as we know it. To lose it, we lose the basic foundation that civilized commerce is. If you believe in walking away, then why shouldn't we in America just default on our World debt as well? Why shouldn't other countries not honor their debts to us? It would only take a few weeks to completely destroy commerce as we know it. Oh, and the credit/debit cards and dollars in your pocket would be worthless before you could draw them out and spend them.
Refusing to deal with debt will allow it to consume us. We have seen so many theories about the end of days. Asteroids, volcanoes, ice ages, aliens and solar flares. Debt and the potential for moral default, while much less sexy, can be the thread to unravel everything we hold so dear.
