Debt, Debt, Debt

[Argus]

So Greece is back with us, and helping make the market shaky, volatile and unprofitable for many. Depending on whom you listen to in the financial community Greece's exit from the Euro, and possibly the EEC, is virtually inevitable, and would be anything from disastrous to catastrophic. Some are saying it would be worse than what happened when Lehman brothers went under. There's the possibility of contagion to other European countries which have high debt loads like Portugal, Italy and Spain, and the whole international financial system could collapse.

But wait, let's not forget the US. It's approaching its 'debt ceiling' again, and the Republicans have promised they will refuse to raise it this time without massive cuts to spending (but no cuts to corporate subsidies, tax loopholes, farm subsidies or defense, of course).

And waiting in the wings is Japan. You thought things had improved because it hasn't been in the news? Nope. Japan currently has a debt load approximately four times worse than Greece. It hasn't been well publicized, and the markets haven't attacked them because almost all of it is held by Japanese. Are Japanese banks going to refuse to buy bonds their government issues? Not likely! But still, how long can such a huge debt load continue to grow unchecked?

Are democratic governments simply incapable of governing with a degree of responsibility now? Is pleasing the shallow self-interest of voters of the moment all that matters? And what happens if all these problems explode within a short time frame - which is not unlikely?

[Moonlight Graham]

Is pleasing the shallow self-interest of voters of the moment all that matters?

Yes. If they don't, they lose their jobs to someone who does spend, spend spend! Ultimately the voters caused this problem. Many people have no idea how to manage a credit card, let alone a country's balance books.

[eyeball]

Yes. If they don't, they lose their jobs to someone who does spend, spend spend! Ultimately the voters caused this problem. Many people have no idea how to manage a credit card, let alone a country's balance books.

Well then obviously the answer is to do away with voting and take people's money away before they hurt themselves with it.

[GostHacked]

So Greece is back with us, and helping make the market shaky, volatile and unprofitable for many. Depending on whom you listen to in the financial community Greece's exit from the Euro, and possibly the EEC, is virtually inevitable, and would be anything from disastrous to catastrophic. Some are saying it would be worse than what happened when Lehman brothers went under. There's the possibility of contagion to other European countries which have high debt loads like Portugal, Italy and Spain, and the whole international financial system could collapse.

There have been huge bank runs in Greece, to the tune of close to 900 million dollars.

But wait, let's not forget the US. It's approaching its 'debt ceiling' again, and the Republicans have promised they will refuse to raise it this time without massive cuts to spending (but no cuts to corporate subsidies, tax loopholes, farm subsidies or defense, of course).

Debt goes up, and up and up.

And waiting in the wings is Japan. You thought things had improved because it hasn't been in the news? Nope. Japan currently has a debt load approximately four times worse than Greece. It hasn't been well publicized, and the markets haven't attacked them because almost all of it is held by Japanese. Are Japanese banks going to refuse to buy bonds their government issues? Not likely! But still, how long can such a huge debt load continue to grow unchecked?

Japan's got much more to worry about than just it's finances. Fukushima is still the biggest problem they have, and is still a huge problem for the rest of the world.

Are democratic governments simply incapable of governing with a degree of responsibility now? Is pleasing the shallow self-interest of voters of the moment all that matters? And what happens if all these problems explode within a short time frame - which is not unlikely?

I don't think the people can be blamed. The people could do all they can with their finances, while the government spends spends spends without any real oversight. The people ARE taking responsibility now and putting the focus back on the government which is part of this root problem. There has not been any referendum in which the people could vote for the bailouts that Greece has received in the last year or so.

Compare that to Iceland where they simply kicked the bankers/financiers out and took back control other their country. Not sure why more are not taking the Iceland Option.

[Topaz]

One guy on the news said he's more worried about Spain than Greece and then there France and England is now in a recession. and I wondering how long can the US with a 15 trillion keep from going under? If their dollar gets devalued they are done and then it hits Canada.

[August1991]

But wait, let's not forget the US.

About 60% of US federal government debt is held by the US Fed. IOW, the US Fed printed a whack of new money and the US federal government spent it. Why?

Well, in 2008, millions of people became afraid and wanted to sell shares/bonds and increase their cash holdings. They "deleveraged" - or changed their portfolio balance. If the US Fed had not printed this new money and made it available to people, we would be in one holy mess right now.

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Two last points: 1. How will the US Fed unwind its position? (That's a good question.) 2. Long term interest rates are so low right now that frankly, even if I were an accountant, I would not worry about US government debt. If you had a $500,000 30 year fixed rate mortgage at 3%, would you worry? Or how about a 10 year fixed rate at 1.75%? Yet, those are the terms at which the US government borrows.

Edited May 18, 2012 by August1991

[August1991]

Are democratic governments simply incapable of governing with a degree of responsibility now? Is pleasing the shallow self-interest of voters of the moment all that matters? And what happens if all these problems explode within a short time frame - which is not unlikely?

This is a separate issue, Argus.

The secular trend over the past 100 years or so is for government spending to rise. (I reckon that, ultimately, democracy allows 51% of the population to vote to take money from the other 49%.)

It's interesting that government purchases of goods/services in most western countries has risen slowly but is typically around 20% of GDP - and is now more or less stable. It is government transfers (EI, GST refunds, OAS, refundable child credits etc) that now account for another 30% of government "spending". These have risen quickly in the past 50 years but now seem to have plateaued.

I guess governments can take about 50% of our income, and that's the limit. Then again, governments are big now on "user fees" and as we say in Quebec, les frais afférents.

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The question here is rather that modern government has become a leviathan. It takes money from some people, buys stuff or transfers it to other people. Increasingly, there is little rhyme or reason to this process.

Children are not educated, roads fall into disrepair, native Indians live in squalor.

But intelligent, well-meaning politicians involved in the process cannot escape the daily constraints. No one knows how to get off the treadmill.

Edited May 18, 2012 by August1991