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Sunday, November 23, 2008

England Gets Worried

... and rightfully so.
Like Iceland, we boast a huge banking industry out of all proportion to the overall economy. Like Iceland, we have an unfunded depositor lifeboat scheme totally unequipped to grapple with failing banks. Like Iceland, our national output is dwarfed by the vast liabilities of our banks. Like Iceland, our banks for years scoffed at relying on domestic depositors to fund their activities and developed a dangerous addiction to wholesale money. Like Iceland, our Government is poised to go on a borrowing spree to try to soften the pain. Like Iceland, our currency is on the skids as foreign investors pull out.
You can't have what you don't produce, at least not for long. Those massive credit card debts, business debts and government debts made you feel rich, but if you didn't actually make anything, the bills are going to be hard to pay. Over at UK Bubble, there's a great post about England spending its way into deeper trouble. In that post, lies this great tidbit.
The greatest lie ever invented in modern economics was the one that said that the government budget does not work like a family budget. The idea is that governments can borrow from "within the family" and use the money to boost expenditure when times are rough. On the contrary, government finances are exactly like those of a family. If the father borrows, the children pay.
Barack Obama is being flippant about the $1T deficit we'll be running next year, but that shouldn't give the Republicans any solace. McCain wasn't going to be much better.

If all the governments in the world go on borrowing sprees at the same time, where will that money come from?

2 comments:

  1. Just added a link to your site....

    Alice

    ReplyDelete
  2. :) Printing presses, KT. At this point they have to back up all that debt. Kind of like the gold standard, yannow?

    (unesses)

    ReplyDelete