There are reasons why major nations haven’t done this yet. But the probability is that they will be driven into doing so in time, as global economic growth remains sluggish, governments fail to implement the radical reforms needed to kick-start higher growth, annual borrowings required to finance fiscal deficits stay high, and the private sector becomes increasingly unwilling to lend money to governments at derisory rates of interest.
Admitting that much of the national debt is fake, and scrapping it by act of congress or parliament, seems so shocking to most people that they can’t believe it will happen.
But is there any reason to believe otherwise, given the track record of the ruling classes in recent years?
Those are the people:
- Who over-stimulated, then failed to restrain, a credit bubble whose bursting brought the world to the brink of economic disaster;
- Whose policies of dealing with the consequences clearly prioritize their own financial, ideological and sociological interests;
- Who have clearly already abandoned traditional principles of fiscal responsibility by embracing the “unconventional” practices euphemistically dubbed “quantitative easing” – primarily explosive money creation.
The immediate problem is not debt, fake or real, but political failure to focus on stimulating economic growth, private-sector business prosperity, and job creation.
The longer-term problem isn’t debt, either – it’s bubble money.
Creating money on a seemingly unlimited scale is supposed to stimulate economic recovery, but it’s very ineffective at doing that. As the well-known British economist and commentator John Kay puts it: “The public at large feels little benefit, sees little stimulus.
“The reason is that the objective of monetization has not been to put money in the hands of consumers and businesses, but to put money in the vaults of banks.”
The obsessive focus on national debt diverts attention from that real problem, which is all that funny money… which will eventually lead to explosive inflation, with potentially catastrophic consequences.
The money creation is a poor substitute for what needs to be done to boost economic growth, a failure rooted in fundamental disagreements among policymakers in the West about what’s required.
CopyRight – OnTarget 2013 by Martin Spring