“PUBLIC DEBT” and “PRIVATE DEBT”…. who is to blame for the economic crises ???

at Megas Alexandros (aka Fabio Bonciani)

If we understand the correct functioning of modern money and monetary systems, we will easily understand that “sovereign debts” can never, ever be the origin of an economic crisis. On the contrary, the real problem is and always will be “private sector debts”

How many times, since the now famous sub-prime crisis of 2008, have you heard politicians and the press charge any responsibility for the alleged monstrosity, in numerical terms, of “sovereign debts” !!!

Since then, not a single day has passed where every day, we are not updated on the new amount of our public debt and by relying on the feelings of guilt towards our children who should have repaid it, they forced us to accept an absurd austerity, which instead was the main cause of the worsening of the crisis itself.

But, ironically, while all of us were scrambling to carry out every single order given to us militarily, in the absurd attempt to reduce the public debt, mathematics and principle of “Communicating vessels”, have ensured that the “private” debt exploded. And this yes, which unfortunately, will have to be repaid by our children !!!!!

Let’s clarify immediately and without repeating all the concepts that MMT has already extensively given us, I ask you in a rhetorical way: “How can” debt “be a problem for a person who creates money out of nothing under a monopoly regime !!!” logic dictates that if I have the ability to create “from nothing” all the money I want, I also implicitly have the ability to repay any amount of debt, whenever the public debt was a debt.

Because even on the fact that the public debt can be called debt we are facing a “misunderstanding”. If logic requires that in the face of a debtor there must always be a creditor – tell me, who would be the creditor, when a Central Bank (directly controlled by the government), credits the accounts of the Treasury, creating numbers out of thin air and receiving in exchange a piece of paper with it written on it “bond”, to allow the government itself to build a hospital.

The answer is very simple, there is no creditor; the Central Bank cannot be, which created that money out of thin air by virtue of a government law, much less can we find the creditor in the various categories of the private sector, indeed, it is precisely the private sector that gets rich net of financial means, by virtue of the fact that the government credits it, against the invoice that the construction company of the hospital will issue when the work is completed.

Now, I already hear the cry of all of you, rightly influenced by years of pounding the main-stream, note me: “But, then, all the bonds in the hands of the private sector, or money that the latter has lent to the state, are they not a debt ???” – Of course they are, but I add, and it is of fundamental importance to understand it: “They become a problem only and only if the State has renounced being the issuer of its own currency in a monopoly regime” – otherwise on the basis of the above concept, they are always repayable by issuing money out of thin air; in fact, by making the government option to finance itself through government bonds only a political choice, i.e. the government could do very well without issuing TDS on the market and if it does so it is always a political choice of give a “Sofa income”, which consists of the related interest paid. Just to stay on today’s issues and with a bit of sarcasm ”, we could define it as a“ citizen’s income ”for the elite.

At this point, if we have understood the above, I think that there should be no more doubts as to what is the main falsehood on which the euro-system is based. In other words, having made a debt (the public debt) become real, which in an economic system based on the correct functioning of modern money is nothing more than a round game between the Central Bank and the MEF, where there is no creditor.

If the public debt, as we are pointed out, had really been a problem, at the level of economic truth, today which is growing at a dizzying pace and has never stopped growing since the introduction of modern democratic states – well!!! do not think that the problem would have already come to light !!!!!

Instead the problem is always there, waved like a “Manifesto of fear”, while we are still waiting for the consequences of the problem itself, which will never come.

On the contrary, the consequences that we feel very strong on our backs are those deriving from the explosion of another type of debt … .. the private one !!!

Private debt, i.e. what the private sector has accumulated with the state (taxes), with banks (loans), with multinationals that provide goods and services under a monopoly regime (energy, water, network, etc.), that yes that it is a real debt, which we are forced to repay with our work, when we are still allowed to work given the current increasingly precarious employment levels.

So, if we really want to get to the bottom of the matter, we absolutely must go and see and understand, how and why private debt has reached such widespread levels in the last 30 years.

The table below shows the trend of Italian private debt compared to GDP from 1995 to 2020:

In truth, that the problem of the crisis that broke out in 2008 and from which we are still not out of it today, was due to private debt,
recognized the same former vice-president of the Central European Banking, Vítor Constâncio, in a now famous speech given in Athens in 2013 in which he argued that, contrary to public debt, it was the overall level of private debt that increased by as much as 27% during the first seven years of the EMU and, in particular, in countries that would subsequently be under great pressure such as Greece (+ 217%), Ireland (+ 101%), Spain (+ 75.2%) and Portugal (+ 49%), while the steep growth of public debt would only begin after – and not before – the outbreak of the financial crisis.

If private debts grew so much in the early years of monetary union, it is also thanks to the fact that the banking system of central countries financed families and businesses in peripheral countries. As we know, these are processes made possible above all, thanks to the trade surplus enjoyed by the stronger economies of the Eurozone compared to the weaker ones and by the “Neoliberal” of a Union that places very few constraints on the single market.

In fact, the institutional architecture of the euro area has allowed countries with a systematic trade surplus, such as Germany, to grow thanks to the continuous and easy indebtedness of countries in deficit (such as the countries mentioned above, also known under the unfortunate acronym “PIGS ”), Creating an unsustainable situation in the long run.

This is a thesis that is now more than shared at the institutional level, as shown in the aftermath of the euro-crisis by the positions relating to the German surplus towards the
US Treasury, the recommendations of the International Monetary Fund and, even, the documents of the European Commission itself.

In short, in short, if the German banks had not allowed the Greeks to drive flaming factory BMWs in very comfortable installments, the Teutonic elites would not have been able to boast to the world of their ability to achieve “trade surpluses”.

Below are the private debt / GDP ratios of Germany, France and the United States, from 1995 to 2020:

Here is the deadly cocktail composed of private debts in full explosion combined with the fact that governments have been deprived of the possibility of carrying out the necessary countercyclical fiscal policy, through an expansion of the deficit aimed at the recovery of consumption and employment, was the real reason that has contributed to generate first and then aggravate the tremendous economic crisis that we are still experiencing.

To continue understanding, we need to ask ourselves now, and there are two questions: “But if government deficits are needed to solve the crisis and the element that raises public debts is precisely government deficits, and given that reality tells us that public debts are constantly increasing”, why the crisis has not yet is it solved ??? and then, where did the money from these deficits go ???

To answer these questions we don’t have to go very far, it is enough to analyze the OXFAM 2019 report “Public good or private wealth?” [1], which gives us full confirmation of a disconcerting picture regarding the social and economic situation of the entire planet.

Speaking of social inequity in the world, the report makes us aware that 1% of the world population holds almost half of the total net aggregate wealth (47.2% to be precise), while 3.8 billion people, (the 50% of the entire world population), they hold just 0.4%.

“Last year, alone, 26 billionaires – the report reads – possessed the equivalent wealth of the poorest half of the planet. A concentration of enormous fortunes in the hands of a few, which highlights the social inequity and unsustainability of the current economic system ”.

More and more people in extreme poverty on the one hand, a few ultra-billionaire crooks on the other. A marked social and economic inequality that shows no signs of decreasing. Both in the rich countries, including Italy, and in those that once upon a time were defined as “developing”.

In Italy the situation is no different. In 2018, 5% of Italians possessed the same wealth as the remaining 90% of the population. The 10% of Italians with the most wealth, owns more than seven times the wealth held by the poorest half of the citizens of our country. A gap that has widened over time.

The growing gap between rich and poor “fuels social anger around the world” and “damages our economies”, the report reads; and I would add, this distance is becoming even more marked as a result of the pandemic we are experiencing.

So to return to our answers, it is clear and evident that the problem is not the increase in public debt but rather how government deficits are distributed, that is, a “privatist” management of the currency today increasingly disconnected from the fiscal policy of governments and always more in the hands of an elite of central bankers, high finance, white-collar workers and rentiers, whose sole purpose is accumulation, based on a constant transfer of wealth from the pockets of many to those of a few.

While governments, over the years, have reserved a balanced budget or even devastating primary surpluses for businesses and households; at the same time, gigantic tax-financed deficits earmarked for interest payments on a fake debt have contributed significantly to the “tsunami” of the transfer of wealth that virtually annihilated the middle class.

Middle class debt, once the true strength of our economy, has been pushed up and is still soaring with painstaking planning. All this, with the sole purpose of forcing this class to sell at bargain prices, their real assets sweaty with the work of a lifetime, in the hands of the few who manage money and debt as they please.

But even the poorest classes today find themselves under blackmail and deprived of personal freedom, forced out of work and / or precarious workers, to pay even primary goods and services in installments, such as electricity, gas and water.

If we want to give our children a better future, we must absolutely keep in mind that the delinquent use of modern fiat money for years and its demise by the programmed elite and many hoped-for “crazy” commentators, will bring us straight back. several centuries, with a de facto return to a neo-feudalism, which seen and envisaged in the global world of today’s large cities, can only be characterized by a dramatic near future.

at Megas Alexandros (aka Fabio Bonciani)

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