We are living in fantasy land. And we believe our charmed life will go on for us and for our children. Of course, reality is different. Just Google your share of the total amount of debt that is owed by you as the taxpayer in your country for a reality check. Your share of the total amount of national debt owed will ruin the rest of your day. And all this time you thought that you had your finances under control. You even had the illusion that there would be a day with no debt. It does not really matter which industrialized country you look at, they are all in the same fix. All the national debts are well above the recommended percentage of the gross national product. To make matters worse the national debt totals usually do not include the amounts your nation promised to pay but has not funded. These promises include stuff like federal employees pensions , medical expenses, elder care, care for veterans and so on and on. Your share of the total is just for the amount of the total already borrowed and spent.
I could give you the numbers as they are readily available on line. But the numbers are meaningless as we have become numb to how stupendous they are. But your share of the national debt and the national promises is well above an average income for one year. On top of that we have to pay state, provincial or local debts which altogether likely amount to a similar total. Then just to wreck your day a little more, we have to consider the debts that are owed by us personally which also come to well above the average income for one year. We could set out the totals but for unknown reasons no one, other than the most devoted bean counters, is alarmed by numbers, no matter what the numbers come to. So far we have set out that to pay the debts it will take a minimum of three years’ average income to pay them. Is that going to happen? There is no likely scenario or foreseeable future that includes the payment of these debts.
How did it get this crazy? For many years our leaders did not borrow and all of the industrialized countries paid their way as they went. Then the politicos figured out that the more benefits they promised to pay for, the more votes they could garner. We, the voters, loved it. None of the politicians explained that what they spend we have to pay. Many of us believe governments have access to endless money. But governments only have the money we pay them. The reality is that the governments spent and pledged our money. We voted for the borrowers and spenders and we are still doing that. Going down that road, there is no exit. And as much as we need to get off this road to ruin, it will not be happening anytime soon, or at all. The name of the political game is to buy your vote with your money. There is no end in sight. Does anyone really think that they would vote for a politician who promised to cut benefits, charge higher taxes, eliminate hordes of government employees and ask everyone to fend for themselves? Not anytime soon.
By this time you are wondering why do people with money keep lending to nations that will never pay? The answer to that question is deceptively simple. If you owe the bank $ 500.00 and you miss a payment the bank is on your case to make you pay. If you owe the bank $ 5 million and cannot pay, you tell the bank when you will pay it back. The same holds true for nations. The money lenders suspect that they will never be paid. But they keep advancing with the hope that someday that nation will come to their senses and start paying what they owe. It is the belief that all will be paid that keeps the insanity going. If you believe in fairytales you may also believe that national debt payments will eventually be made. The national debts keep going up, the lenders keep advancing and the carousel to nowhere keeps spinning. One day the lenders will lose their belief and realize that all along they lived in fairy land and there will be no payments on what is owed to them. As with all financial merry go ‘rounds, on that day the carousel will grind to a halt and the music stops. On that day the money stops flowing.
What happens then? Well, no one really knows. But if we can manage to keep what we have that could be the best result. The best hedge may be to acquire those commodities that everyone will need and want and will trade their labor to get. It is a guessing game as to what that may be. In the past it was always precious metals and jewels. And that may be the hedge again. But after the collapse it may be some time before people will trade their labor for perks that will not feed or shelter them. Economic security may be provided by garnering food and shelter. For which people will trade their labor because they will have to.
While we do not know how to survive a collapse of the economy, we do know that hard times may well change the social structures that we have come to rely on. Our western democracies depend on everyone pulling together to solve the problems. Unfortunately, there will be many charlatans masquerading as politicians who will promise to fix it all and no doubt some will be believed. The demagogues with all the answers will be put in charge and when their ill conceived policies turn into disasters their usual response is to force their subjects to comply. It will then not be a case of the policies being wrong, but a case of the population being unwilling. Hence ever more strictures to make people obey. Dictatorship will be just around the corner.
The prosperous society to which we have become accustomed is based on everyone contributing and no one group or class getting more than is roughly fair. Everyone wants financial security, wants a home to raise a family, a peaceful place to live. All without having to work night and day to attain them. Of course there will be people who will work harder and smarter and acquire much more than the basics. And that is fine. So long as society more or less provides everyone with the opportunity to achieve their goals, all will be well. However, when there is not enough to provide the basics for the largest group, due to an economic collapse, the social contract gets torn up and the focus will be getting more than others. In short, the value of labor will not be paid. The watchword will be “Beggar thy neighbor”. Instead of a common enterprise to build a prosperous society for every one, we will separate from ourselves and look after ourselves at the expense of others. At this point we can truly conclude that debt has parted us from best selves.
October, 2020.