Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
The Debt Crisis:
Caused by Wars, Corruption, Deficits, and Mismanagement
By Yamin Zakaria
Al-Jazeerah, CCUN, July 19, 2011
The Debt Crisis: Causes and Cure
In the 1980s we
had the epidemic of AIDS; today its debt. There were lots of speculations or
conspiracy theories regarding the origins of the AIDS virus being man-made,
but for sure, there are no doubts regarding the current debt being
synthetic. It is not just the UK, Ireland, Portugal, Spain, Italy and Greece
- the disease of debt has gripped most of the Western world including the
US, which is also the largest economy in the world.
exception of the US, one may ask, how can a nation fall into debt, when it
is not involved in any major wars or experienced natural calamity? It can be
put down to one thing, living beyond ones means; the government budget is no
different to a household budget, when expenditure exceeds revenue, debt
arises, it is as logical as one plus one equals two. The immediate remedy
seems to be – borrow and reduce government expenditure which results in the
poorer section of society suffering most.
Before the cure, one
should at least examine the causes of the debt. The government books should
be audited by the public, detailing out the expenditure and revenue, so that
one can determine how the debt has arisen. This should be an inherent
process, given that Western nations brag about their democratic credentials
that state governments are accountable to the masses.
the reasons given for the decline in tax revenue is the aging population.
They are economically unproductive and place a burden on government
expenditure; the more productive younger generation is becoming scarce as
people are having less children. This can be attributed to fanatical liberal
values replacing traditional family values; women are encouraged to pursue a
career before motherhood, and men are encouraged to lead a bachelor’s life
of fun or become homosexuals. Marriage and children are viewed as economic
liability that constrains the ‘freedom’ of the younger partying generation.
A booming economy needs a plentiful labour force that generates wealth and
creates the demand for goods and services. Indeed, countries with a steady
growing population like India, China, and Brazil are emerging economic
powers. Chinese capital is now flooding into Europe; there is talk of China
bailing out Greece. It sounds like the East India Company has finally
arrived from the East!
Another major factor hitting the government
purse is waging wars in distant lands and keeping military bases around the
world; such activities are economically unproductive and expensive,
especially for countries like the US. Agreed, some of the expenditure of
keeping those bases is covered by some of the docile Arab regimes and their
like, but still that is not enough to balance the books. As for the wars,
there might have been some financial gain in oil-rich Iraq, but for sure
barren and oil-less Afghanistan was a loss in terms of the war booty. Hence,
the US is cutting back, it is withdrawing gradually from Iraq and
Afghanistan, and has taken a backseat over Libya. The expensive space
project that is rooted in the cold war conflict, which has cost billions,
has been brought to an end. If the masses are suffering at home, why
Apart from an aging population and war, you can add
government mismanagement, which the political parties love to debate over
and over. However, there is a greater cause for debt: that is the system of
credit creation through printing money that is not backed by gold or silver;
fiat money functions on the basis of mass conviction, as it has no intrinsic
Going back to basics, debt should match actual wealth in
society, this is the natural equilibrium. How can anyone lend me money if
they do not possess it in the first place? If one party can create wealth
simply by printing money or lending actual money backed by gold and silver
that it does not own, then one is also creating debt out of thin air, this
is an unnatural process and to be frank dishonest. If I had three friends
who asked me to keep £1000 pounds of gold for safekeeping for a year, would
it be right for me to lend that money to another party with interest without
their consent, thereby making myself richer by £3000 without doing any work?
This is what the Banks do, its theft legalised. If the society collectively
is creating wealth out of nothing, then it is also creating debt out of
nothing as that money is lent.
The injustice here is: due to the
money lent by the banks which are not theirs in the first place, the debtor
has to generate real wealth by employing real effort to repay that loan. The
Greeks for example will borrow paper money and then have to graft hard to
repay that loan with interest. Of course, they too can print money, but then
the money will depreciate in value enhancing the debt problem. Even if the
Greeks were loaned that money with zero interest rates, it is still
inequitable and a source of instability, because the banks as creditors are
not the owner. If the money was lent in the form of real assets, in gold or
silver by the real owners, that would limit the scale of loan and the debt;
the system would be in equilibrium.
governments know money can be printed by the banks, as if they have
Aladdin’s lamp with a genie, the appetite for borrowing increases. In
contrast, if the money was intrinsically linked to tangible wealth like gold
and silver, it would limit the capacity for borrowing and in turn it would
limit the growth of debt; gold and silver cannot be printed unlike money.
Hence, debt would not arise, unless there are exceptional circumstances like
war or natural calamity. This can be corroborated from history, the Ottoman
Empire as an example had its currency on the basis of gold and silver, and
it never went into debt until the very late stages suffering from war,
corruption and decay.