Government debt and unemployment

In one of previous articles I stated that 40% of state budget expenditures are expenditures at the Ministry of Labor and Social Affairs. To the same extent, this ministry also participates de facto in the state budget deficits (ie in how much money we lack to pay for our state).

Leaving aside pensions, various unemployment benefits and others have a large share in this amount. Politicians simply say that if they give someone unemployment benefits or some allowance, that person will spend more and thus save some working place. At first glance, this seems reasonable, doesn't it?

The problem, however, is that the state must borrow for those subsidies. And from whom does the state borrow money?

It is, of course, from banks and other financial institutions. They are also mostly willing to lend to the state, because it is a fairly certain investment - when the debt itself is no longer repaid, they earn at least on interest and the state usually has no problem paying interest. Mostly, and also until others stop lending to him. But borrowing 2 billion crowns from a bank out of nowhere is not easy. It's not like yours loan for a nice Christmas in the thousands (which is money thrown out the window, after all), it is loanwhich will affect the whole economy.

If you get from the bank will lend for example, the 2 billion, so then the bank cannot lend just those two billion to someone else - for example, a company. Fortunately, the Czech Republic avoided the financial crisis (after all, Minister Kalousek told us a year ago and it was true), but the economic crisis did not. And it is exacerbated by the shortcoming loans.

In reality, this means that even companies that have secured orders and are waiting for payments in the coming months cannot borrow for the current operation, even if they will be able to repay this loan relatively soon. Banks here loan they simply do not give, because instead of investing a smaller amount in the business, they invest a larger amount in the state. And there is no money left for the company.

Preferred state - always. The state borrows more money, so they get more interest paid from the state. So it's no wonder. The bad thing in this case is not the bank, which does not want to lend entrepreneurs to the poor, but the state, which cannot manage public money. So money for all of us.

The company will then simply lay off, for example, 10, but even 1000 employees, in order to keep the money for normal operation. Those dismissed employees will go to the employment office to apply for unemployment benefits, for which the state must borrow…, and so it goes on and on. The problem, however, is that if more employees are made redundant because the company has not received a loan from the bank and they start receiving unemployment benefits, the amount of money that needs to be spent on support will logically increase. This also means that the state has to borrow more money for these additional subsidies, which results in a further increase in the shortage. loans, further redundancies and further widening of the state budget deficit.

So it is a constant circle. However, the problem is of a long-term nature - with a larger deficit, the total government debt also increases. What does it mean?

Interest is also paid on the total government debt every year. These interest payments are another part of the state budget expenditures (currently, with everything, about 64 billion). If these interest rates increase every year, then hand in hand with rising unemployment and a generous social system, state budget expenditures also increase further. And that is why the state must borrow again. This will increase not only the state debt, but also interest rates for the next year (further increase in expenditures), which will ensure an increase in the state budget deficit for the next year, thus ensuring a further reduction in corporate lending and further redundancies. Expenditure on the social system (unemployment benefits) will increase again, the deficit will increase again…

Do you have any idea where it's going?

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