World debt crisis exposes lack of fiscal responsibility

By Billow Kerrow

Are Governments living beyond their means? According to International Monetary Fund (IMF) reports, official debts have been building up. Since 1990, the world’s national debts have grown nearly fourfold to stand at $95 trillion, at a time the world economy is not doing well. The US leads the world in the debt crisis.

The recent US public debt ceiling crisis reveals a sick nation living beyond its means. Its national debt stands $14.6 trillion. Each citizen in that country carries a debt burden of $47,000 and it has increased by nearly $4 billion daily in the past three years. Its GDP is $14 trillion, meaning a debt to GDP ratio of 100 per cent. To service these debts, it paid interests of over $400 billion last year alone. Economic experts believe public debt to Gross Domestic Product (GDP) ratio of over 90 per cent will lead to impairment of economic growth.

It is now the world’s largest debtor nation, a demeaning status from its coveted position of the world’s largest creditor (investor) nation in the 1980s. The US debt ceiling crisis that led to its AAA credit rating downgraded by Standard & Poor last week is an indication of serious concerns about the financial health of the world’s only super power. With its tax revenues not keeping up with its huge spending appetite, the country had annual budget deficits well in excess of $1 trillion in the past three years.

But for the US officials, there’s no need to worry. The former Chairman of the Federal Reserve Band Allan Greenspan was quoted shortly after the downgrading as saying the credit rating was not an issue as the US will never default on its debt payments because it can always print more money! You know, just the kind that our African governments do when they are broke. Technically, then the US is insolvent.

Analysts are concerned the falling value of US debt will mean it will be less attractive, and risky to invest in US bonds in future. Its currency will also lose its value against international currencies, which is already happening.

Its economy is still struggling from the 2008 banking sector crisis, with a modest growth of 2.5 per cent last year. Unemployment is rising, companies are still collapsing under debt and the per capita income of $47,200 is declining.

Well, for all its military and economic misadventures around the world, it may be the beginning of the end for Uncle Sam.

Americans are getting increasingly disillusioned. The changes promised by Obama remain a pledge. It is a long way from the optimism expressed by former US president Herbert Hoover in 1929 just before the great depression ‘in no nation are the fruits of accomplishment more secure. In no nation is the Government more worthy of respect. No country is more loved by its people’.

But worse still, the Eurozone debt crisis in Europe might lead to more problems for the US economy. The billions of dollars in write downs by European banks might impact on US banks too. Already, banks in major European countries such as France and Germany that have supported the weaker nations facing debt crisis such as Greece, Portugal, Spain and Ireland are taking in huge losses.

France debt downgrade might precipitate a major crisis in the European markets. The financial markets are already losing big time as speculators cause havoc. The recent riots in UK revealed just how social values have changed in Europe, largely due to poor economic situation.

Sadly though, the Governments are not in touch with reality and are shocked by the behaviour of their restless, unemployed youth.

It is apparent that forcing growth through fiscal stimulus has precipitated the growing world debt crisis. The rising cost of financing government debts exposes the lack of fiscal responsibility even in major economies.

The writer is a former MP for Mandera Central and political economist