Greek debt world wide

An editorial in this week’s The Economist calls for Greece’s official creditors to write off a big chunk of the Greek debt so that country can start over again.

Debt is not a problem restricted to Greece.  It is a problem for most of the countries around the world.

So much debt, government and consumer, has been for projects that will not earn the income with which to repay the debt.  There is little hope  any of this debt will ever be repaid and therefore it will eventually have to be written off or defaulted.

The down side of this is that a lot of people are going to lose their savings.

Once the big crash happens I hope the survivors will be smart enough to find a way of creating money that is not based on debt.

 

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Debt write off – a haircut or worse

Here’s another idea to kick-start the American economy – a large write off of consumer debt so that people can start spending again.  If the economic crisis is because our use of resources is unsustainable then this would probably not solve that problem.

Nevertheless,  it is an interesting idea depending upon who would ultimately get the haircut.

Banks and other financial institutions are financial intermediaries in that they act as an in between for people with excess money in their hands and people who need to borrow.  Thus if there were to be a write off of debt it would probably  end up on individual  savers – likely a reduction in pensions and personal savings.

Most of these people are unlikely to willingly see a reduction in their savings and pensions and they have considerable political power.

It is possible many of these people are going to get a haircut or worse, so it might be less painful if it were to be done in an orderly fashion – rather a barber than an executioner.

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