Tis the Season to be … Plunged Further into Debt
TIS THE SEASON TO BE … PLUNGED FURTHER INTO DEBT – We all know times are tough but life is a vicious circle of what many call ‘essential debt’.
Spend and you get into debt, don’t spend and banks can’t lend which creates a banking crisis and in turn means they don’t have the money to lend to business. As business no longer have access to borrowing these collapse leaving the Government to care for an increasing number of unemployed.
I know you’re thinking this is madness; of course you are right, but it is how an economy actually works. It might appear ridiculous to some to think that debt fuels an economy and despite the Government’s call for austerity to eradicate debt, such an economic model can and never will work.
In an ideal world debt would be controlled but we don’t live in an ideal world. Our desires simply fuel our growing debt and as the debt grows ever larger, the risk of defaulting becomes even greater until we reach a point where the bubble bursts.
Over the last few decades we’ve experienced a number of economic bubbles bursting; there was the dot com bubble, the housing marketing bubble and lastly the debt bubble which effectively made the world’s banks insolvent.
The response from Governments around the world was to introduce ‘stimulus packages’ which effectively created more debt to get those in debt out of debt only to create more debt for others.
Over the last few months George Osborne, the British Chancellor, has been announcing an economic recovery. For many this is viewed as a sign that we are finally seeing growth in the economy and therefore reducing our national debt.
It is of course a lie, for the Chancellor’s announcements simply means that the amount the Government needs to borrow next year will be slightly less than this year. Regardless of how you may perceive this the truth is that Britain’s debt continues to grow and therefore it is most unlikely we will ever see an end to the austerity measures imposed upon us.
In 2013 alone we have witnessed a number of well-known high street retailers, such as Comet, go into administration. The number of large retailers who have gone bust this year is nothing compared to the small independents who have been failing by the thousands.
As retailing collapses, this in turn creates growing unemployment and so the Government has been pushing the banks to lend more money to help save them; despite the financial risk to the banks.
Who really cares about the banks anyway, after all they were the ones who started all the problems to begin with?
As in 2008 if the banks went bust again the Government would have to bail them out as the banks hold far too much Government debt and without the banks the Government would have nowhere to borrow – no loans, no economy; it’s as simple as that.
Tis this season to be … well plunged into more debt. The Chancellor’s message some two months ago, in which he announced economic recovery, was little more than a ploy to increase consumer confidence so that they would hit the high streets this Christmas and spend.
How effective has his plan been? According to the latest survey in regards to Christmas Monday it is expected that some £45,000 a second will be spent, or £2.7 million every minute.
In total, analysts are predicting that consumers would have spent a record breaking £3.9 billion over a period of 24 hours in the lead up to ‘last-minute’ shopping.
Visa, Europe’s biggest electronic payment company is expected to process over 31 million UK credit card transactions and Barclaycard have announced that it expects customers to withdraw approximately £25,000 a second from the UK’s cash machines.
Overall, many high street retailers will be breathing a sigh of relief but they already know that the relief is merely temporary.
None of us really like the debt that we carry, if is not the credit cards it’s the mortgage and if not the mortgage it’s the hire purchase agreement on the family car… yes we are literally drowning in debt, so why doesn’t the Government tell us to stop spending; in fact why did the Chancellor announce and economic recovery at all?
Britain, like many other countries operates on debt; we can no longer live without it. There is however an inherent risk that if debt wasn’t created it would result in the value of the pound collapsing. This in turn would destroy investor confidence, a drop in the country’s credit rating and therefore investors refusing to lend.
As the wheel turns, borrowing becomes far more expensive pushing the country further into debt as it attempts to spend its way out of a deeper recession through creating more stimulus packages that require greater levels of borrowing at high interest rates – you can see where this leads and the evidence stares us straight in the face with the likes of Greece, Portugal, Spain and Italy.
Is the bankruptcy of Britain inevitable? Yes, is the simplest answer that we could give; it just goes without saying that you can only borrow so much and when your income doesn’t allow you to service the interest on the debt you hold you technically become insolvent.
It has been argued that we should raise taxes in order to give the Government more money to stave off bankruptcy, however this in turn would create inflation and in turn the money provided would be worth far less.
Currently, with low inflation, the pound remains fairly strong compared to other currencies, this in turn allows the Government to borrow more. Factor in high levels of inflation that not only reduces the amount the Government could borrow but also reduces its value because prices of everything would increase exponentially.
It might now appear to be a good thing that our currency holds far greater value than currencies of competing countries but this also creates a problem.
As the value of a country’s currency devalues it means workers in those countries effectively get paid less. With lower wages and often less regulation many manufacturers have moved their production activities overseas.
Of course back home, workers have been laid off which stops these workers from paying taxes resulting in the Government having to support them through welfare. The result in this scenario means the Government has even less income and more expenses, resulting in a recession.
Look carefully at the workplace today and you’ll realise very quickly that you are so desperate to keep your job you will generally work more for less pay; in fact the average pay rise in Britain over the last few years hasn’t come anywhere near the levels of inflation.
You’re probably scratching your head and wondering if there is ever really a solution to the problem of debt, but unfortunately Britain, like the U.S, is in a Catch-22 situation.
The British Government cannot cut spending or raise taxes without making the recession much worse and it can’t simply create money for this would result in uncontrollable inflation.
Going back to the question of whether Britain will go bust… right now the only solution appears to be to continue borrowing cheap money but simple math dictates that once you can no longer repay the interest then insolvency is the only probable outcome.
You might at this point be thinking that it’s never really going to affect you but unfortunately, it is you that are going to get hit the hardest.
Look at Greece… did you know that there are people going to work every day and not getting paid at all? This is because the banks have no money to support the firms and if Britain or the U.S goes bust the ramifications will be felt worldwide.
There are some economists who are now predicting the total collapse of the world’s entire financial system and when that happens there will be no jobs, no fuel and no food on the table.
We have created a financial monster that we have refused to either acknowledge or take responsibility for and the suffering will know no end once the house of cards finally collapses.