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Spiralling Debt & The Road to Breaking Point

Posted in business, economics, ethics, finance, sustainability

The biggest challenge to the ‘ecosystem’ of world economics that keeps society ticking over is how to overcome our inability to regulate a sustainable economic model. In Europe at present we are undergoing the difficult measures in setting about rules of austerity to ensure that government borrowing never gets as out of hand as it has done on our watch. I post on this topic now as it is topical to me — back home here in my native Ireland we are voting on a referendum this week to ensure we no longer borrow from our children to fuel indulgences today — a referendum on rationality and responsibility.

The topical of austerity reminds me of an opinion I blogged on a crisis in the Obama administration last August on national debt in the light of striking comments from foreign figureheads amid the storm from the ‘Tea Party Taliban’. I share with you for to see if anyone cares to comment on an operandi of living like parasites off the global economy:

Living Like Parasites Off The Global Economy, originally written 3 Aug 2011:

With the US in turmoil over its national debt, and held to ransom by a ‘Tea Party Taliban’, last week China publicly mocked American democracy. Yesterday, the world witnessed the humbling of America after a trillion-dollar deal marked the end of an era for the US. The US now faces a shift in its relations with creditor nations, and it was not all too surprising to hear Vladimir Putin, the Russian Prime Minister, yesterday accusing Americans of living “like parasites off the global economy”. If America had defaulted on its international debt obligations, that is exactly what it would be. While America continues to service it’s debt, it is quite the opposite — for now at least- as is perpetually paying interest to its creditors.

However, one needs to look at the bigger picture. In 1980, the size of US debt was $1 Trillion. It stabilized in 1995 at $5 Trillion until 9/11 after which the gross military spending on combating dubious wars saw it rise to where it is now — $15 Trillion and rising rapidly out of control. An 11th hour rescue deal that was far less than the Obama administration wished for sees its debt ceiling rise further, though perhaps finally brought to account.

The US debt is the largest in the world. Purchasers of Treasury bills still reasonably expect the US economy to recover enough to pay them back and foreign investors like China and Japan, the US is such a large customer it is allowed to run a huge tab so it will keep buying exports. The debt is 95% of GDP, and interest alone on the debt was $414 billion in Fiscal Year 2010. One wonders when the US is going to pay it all back. It is reasonable to anticipate that sooner or later, an 11th hour rescue package, like the one negotiated with The Tea Party Taliban this week, will not be there to save the US from defaulting on its debt, at which point the US will have proven itself to be a parasite on the world stage — one that borrows and declines to pay you back.

The alternative scenario paints a parasitic picture of only a different hue — if the US government and similars do eventually pay back all their borrowings in recent decades via raised taxes and spending cuts, we are in a situation where ones children have to collect the invoice for the excessive indulgences of today. A falsis principiis proficisci…

3 Comments so far

  1. I disagree that the Tea Party is like the Taliban. It is a bunch of people who agree with you that the government is out of control, can’t manage its budget, doesn’t provide goods and services as well as the private sector, does a bad job of picking winners and losers (see: corn-based ethanol), etc.

    The Tea Party believes that US Constitution created a limited government, and it wants to return to it. If the Tea Party is crazy, it means history and common sense are crazy. They are called like the Taliban by their opponents, who want to marginalize them. The best way to marginalize someone is to lie about them. I can also suggest you go to a Tea Party rally and see for yourself.

    The Republicans had much better plans to fix the debt crisis, but Obama is ignoring them. He also ignored the plans created by his Debt Commission.

    We cannot pay back our debts. The only thing we can do is reform the systems so we can afford them. However, we can also do this while having low unemployment. In general, government destroys wealth. The dilemma between growth and austerity is a false choice. We need both, and can have both.

  2. Keith — yes I wasn’t suggesting the Tea Party is like the Taliban — though I felt it appropriate to reference the analogy to plateau the ‘emotiveness’ of the issue. It is very true that the best way to marginalise people is to lie about them — even happens here on Lifeboat disputes. You actually endorse the main point of my post in that ‘We cannot pay back our debts’ — it shows how far borrowing has gone out of control. Agreed one can have growth through austerity. There isn’t really a rational Plan B.

  3. We do agree on a lot, I just want to make clear that the Tea party is not holding the country ransom. They are the only movement in America trying to fix our problems. Obama is not proposing reforms. His solution to our problems is more of the same government spending. This movement is a threat, so many tell lies and say they refuse reform, which is Orwellian.

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