Who will pay the national debt?

When I see the current over-indebted countries like Greece and Italy (however, the Czech Republic is also in debt…), I have to ask: did it really have to go that far? Who made it possible?


How could states get into debt like this?

Someone had to let them. By lending them to them. In the event of bankruptcy, it comes short. But why did it have to go that far?

He goes bankrupt when the debtor should repay, but he has nothing to do. He could borrow again, but he would probably not find a creditor in such a situation. There is no creditor who would have enough confidence that he will get the borrowed money back.

But this is not something that cannot be estimated in advance. The debtor has been unreliable for some time before bankruptcy, so the latter could have guessed. If they did not lend to him, they would save and bankruptcy would come a little earlier (with less damage). Feedback on mismanagement occurs earlier.

But this simply brings another part of the creditors. (I make a little inaccuracy here - I assume that someone else always lent it to him. I want to avoid complicated wording.) Together it will be less money (bankruptcy will occur with less debt) and maybe a smaller number of creditors, but there will be some loans, which would have been paid if bankruptcy had taken place later. But it's actually already in this part loans could be predicted…

Increasing the prudence of creditors therefore leads to a further increase in the prudence of creditors. I don't believe it will work indefinitely, but it is obvious even a relatively small increase in the prudence of creditors at the outset can result in a large-scale haste of bankruptcy. That's not bad - Such a rapid bankruptcy will have relatively small consequences and early feedback. (In computer science we call it fail fast). As soon as the period from the beginning of indebtedness to bankruptcy decreases close to the length of the election period (even two or three election periods are quite short), the consequences of scattering politicians would be much better seen. They would change their minds. And if not, voters would change their minds.

How are trust and prudence measured?

At first glance, trust can be a difficult concept to grasp. In general, probably yes, but in the case of loans it is not so difficult. Lenders express this largely by number.

The less I believe that the debtor will return the money to me, the higher the risk I see here. And I have to balance the risk somehow. In addition to enforceability and guarantees (for example, in case of non-payment you will lose the house) is possibleincrease interest.

Who made the mistake?

But we are still not at the heart of the problem. We know that someone has lent too much to the states and that they will take it. The question remains:

  • Who was that?
  • Why did he do it? (If he does bear the consequences himself, he has no reason to borrow…)
  • Will we take it somehow?
  • Did we contribute to that ourselves?

I will try to answer these questions. According to many articles, the answer to the first question looks quite simple - banks. (It's pretty stupid to verify or refute - it requires more extensive analysis. I don't dare to do that, but the possibility that they are banks sounds quite reasonable. Banks have quite a lot of money and they want to invest them somewhere.)

The answer to the connection with us is also obvious - many of us have money in the bank, and if the banks get into trouble, we will pay for it. The question remains why banks behave in this way and why we support them.

(So ​​I think of the idea of ​​putting money in a bank and the state giving us a gift for that money, for which we thank him. Don't look at the donated horse's teeth. "Let's not be surprised that the money isn't here. But don't take that idea quite literally.)

What does prudence for banks and people?

But banks are not interested in going bankrupt and people are not interested in losing their money! Bankers should be extremely careful to keep banks solvent, that's in their best interest, isn't it?

Maybe not quite. This is where the state enters into its written and unwritten guarantees. What are we talking about?

The first thing is that most bank deposits are state-insured. In such a case, people will not be so interested in how the bank manages. Banks will be motivated to take risks because risky investments typically yield more. If the risk comes out, the profit will come mainly to the bankers. (Okay, they'll share it in interest, haha.) The moment the risk doesn't work out (in the case of bonds, it probably won't be right away), everyone will pay it in taxes. If only the bank's clients paid for it, then only those who believed in its promises would pay. People would be motivated to choose well-run banks that do not take too many risks.

The second thing is even worse - a troubled bank can be saved with everything. Bankers who take risks still have jobs to do and can take risks for others' money. (But when the risk pays off, they rake in the profits themselves.) If I remember correctly, it happened in the United States with the argument that they were too big to fail. (So ​​we support them and in time let them make an even bigger fail…). And most importantly, it is probably planned in the EU - as I should understand otherwise recapitalization of banks?

It sums up the naming quite well private profit and public losses. This is not exactly according to capitalism, where not only profit but also loss is private.

Does the state guarantee itself?

If the state sold the bonds only to its banks (and they would not resell them and would not take out insurance with them elsewhere), then the state would insure its possible insolvency with its deposit insurance. It would be clear that state deposit insurance would only be an illusion in the event of its bankruptcy, because it would still have nothing to pay for it. It's a little (but not much more complicated).

Very fragile system

States owe a lot abroad. If Greece goes bankrupt, not only Greek banks can get into trouble. And if one of them goes bankrupt and is insured by the state, the state can get into trouble. If it goes bankrupt, it can get other banks into trouble… You can see how everyone is leaning on each other. (Greece probably won't be such a problem. Unless 'Euroval' was used and Italy fell with Greece - I admit here that I don't know the current situation well enough, but I hope that 'Euroval' will be buried.)

By the way, someone has already described this domino. It is simply clear that those guarantees cannot work indefinitely.

To be precise, in the extreme case, the state could put pressure on the central bank to print any amount of money and buy government bonds for it, for example. But this is basically just another form of taxation - inflation. High inflation is perhaps a worse alternative to bankruptcy. Slightly different is the situation in the euro area countries, which would have to influence the ECB for inflation. On the other hand, I think there is even more motivation to rely on it. But that would be a separate article.

Add state intervention? Remove!

Some may think that the state needs to be better supervised by the state. It is indeed possible that such efforts will occur. But what would solve it? Which of the officials has a real motivation to make the right decision for others? He will have no more power here bribe or (in this case) pressure from politicianswho want to scatter and buy voters from foreign taxes?

It probably will. And who will benefit from such state supervision?

In this context, I remembered efforts of politicians introduce a new tax and make an exception for their bonds. Do you think it would turn out differently here?

No, this is not the way to go. Guarantees for banks must disappear, even gradually. Then citizens will have an incentive to look after the banks (or cough up on them and their low interest rates, also the way - the market will also be affected) and banks will have an incentive to make less risky investments.

Is change needed in all states?

When I bit the intertwining between the states, the question arises as to whether the abolition of guarantees in the Czech Republic should be enough for us, or whether the neighboring states must also cancel them in order for it to have effect. At first glance, this does not make sense to us without the cooperation of other states. Our state will be able to continue to get into debt.

But our banks would not support it and we would not bear the risk. And other states should have the motivation to join us. And if loans "disadvantaged" us by any regulation, as a result it would be more or less the same for us. It would not be ideal (it would be run by politicians, not the market), but it would also be a possibility.

What's the point of a current account?

So it definitely makes sense - it is definitely suitable for paying via the Internet, etc. But I don't think it's worth putting all my savings into it. What of it? The interest rate is usually ridiculous and the risk is unnecessarily high. That you will break it down into more banks? Fine, but in case of problems with, for example, government bonds, the banks will be in a similar situation and more of them can fall practically at the same time.

Something else are savings accounts, term deposits, mutual funds and the like. That may be worth considering. Interest can already be said about interest. One can already think about whether there is a greater risk or a return. I don't dare to estimate that, and in general it is probably impossible to say.

Article originally published on the author's blog.


  1. O 'Pruz:

    I wanted to write it so that the article would be well understood by a larger number of people. The chosen style is purely subjective - OK, I understand that it doesn't have to fit anyone.

    To increase prudence: I am writing about a situation where the debtor still borrows to repay the original debts, so that his debts are just growing. It doesn't go on indefinitely. After a while, potential creditors cough it up. And the last to lend to him won't get it back. If the borrower wants to borrow again, the creditors will be more prudent. But prudence itself will file for bankruptcy. Therefore, if I assume prudence from other potential creditors, I will be more prudent myself. This is how the "perpetuum mobile" works.

    Whether one believes that voters would count politicians on bankruptcy in a short time is up to everyone, but so stupid voters do not deserve better policies.

    If someone writes an article full of nonsense and I comment on it, I will not choose relatively insignificant things from it, but I will choose the biggest nonsense. If I commented on the little things, it would give the impression of "a pretty good article, except for these little things."

    On the contrary, now men feel like you're just pretending that there are some far worse things, but you don't mention them because you make up (whether the mistakes aren't there or they are there, but you don't know about them). I'm not saying that I always write flawlessly, for example I admit that I could have explained that caution better in the article, but I don't feel from your comment that it would somehow be reasonable to refute something I wrote.

  2. I don't know what inadvertent I got, but discussing with the word waffles and in the first place, he convinced me that it would be a colossal bullshit.

    And yes. An article wannabe insider, such a professionally striking one. Capitalist building. Such a godlike “did it really have to go that far? Who made it possible? ", Probably the author inserted it as a tensioning plot, which he then masterfully cuts.
    Apparently he woke up after many thousands of hibernations, which undoubtedly does not prevent unraveling.

    We can only rely directly on pearls “Increasing the prudence of creditors therefore leads to a further increase in the prudence of creditors. “Such outright caution and, in addition, a beautiful perpetuum mobile.

    The End of Goddess "They would change their minds. And if not, the voters would change their minds. “Results in a beautiful game on BY.
    Or THAT the author WAS such a stupid babe?

    The author, I chose only the insignificant evils of the article, I did not dare to approach the experts from piety before the lived reality.

    Success in building efforts.

    Waffles, I hope you swallowed that article with your mouth open!

  3. I think that the system (political, economic) as it is set up today envisages that the debts that the states have will never be repaid. Thus, as someone before me has written, a handful of bankers get rich from paying interest, not just in Africa, at the expense of the rest of the population. It must be added that we push our heads into the noose ourselves. It is not for nothing that they say we have the policies we deserve.

    If states, through central banks, did not have the power to decide on the amount of "money" in circulation, no one would have to vouch for the state, the value of the commodities that would cover the banknotes would guarantee it. Of course, it would be ideal to deprive the state of a monopoly on the issuance of "money" and allow real competition into the banking sector, but this is currently science fiction.

  4. I described some of this in an article, but it is not possible without someone putting the money into these banks. By putting money in the bank, one supports this.

    If those loans to Africa are moral, that's another chapter. However, I am inclined to the opinion that in the long run it will be more a problem of creditors (ie in the results of bank clients), rather than residents of that state. It would be a problem for the population at a time when they would collect these funds from taxes or inflation.

  5. 1. Banks provide risky loans because they are shares, where shareholders look at how much they earn from the shares. Therefore, they give priority to the manager who takes risks, especially when stocks are pouring. If anything, it pays to stand. because "too big to fail". The conservative manager, who is looking to minimize risk and stability, is leaving because it is spilling.

    2. Banks love indebted countries. An ideal state is one that is indebted in such a way that it can only pay off the interest and logically will do so materially, because it cannot recover its debt. See, for example, African states, where exactly this is happening and at the price that it is all paralyzed. It's not in school, it's not in healthcare, it's not for anything. And the state, which has made it so far that they didn't even have the interest, forgave part of the debt in order to maintain the ability to pay interest. When I have a dairy cow, I have to take care of her so she doesn't get caught. The African debts then arose from loans to the kleptodictator, whose assets then reached almost the amount of loans. The person who lent the money knew very well what would happen to it. It would be moral to reject the loan, but we would demand something from the banks that is in direct conflict with their essence: moral conduct.

  6. Lafi: I think the mentioned problem with state guarantees would be here with the currency covered by gold. After all, I talk only marginally about inflation, which is closely related to it - as about other (also bad) possibilities of development, which do not differ in any fundamental way.

    So I don't see social engineering there. On the contrary, I say that the state should not interfere.

    (Otherwise, I'm the author of the article - the connection between my name and nickname may not be obvious at first glance.)

  7. I really don't know what to think about the article. As a description of the mechanisms of the functioning of finance, I miss the mention of the most important things, namely the monopoly of central banks on the individual currencies of their states. The word 'theirs' is distinctive. As a second, no less important reason, I see a currency uncovered by commodities, based today only on the shaky confidence in its value. Other things are just the consequences of the above-mentioned crimes of bankers.

    With the words "should be enough for us…" and the like, it came to me as an effort for social engineering, something like we command the wind, the rain. A person is always acting 'Human Action' and not the state, a bank or another organization.

  8. waffles: In my opinion, it will be paid mainly by those who do not know how to get out of it and do not realize the essence of the problem .:
    * Modern beggars have no night to pay for. But after years of a relatively certain begging proceeds ("give me the benefits, or I'll sue you, I have a right to them!") They probably won't get their privileges the way they used to. This can be a problem for those who are not used to working. Those who are happier (probably mainly younger, because habits are difficult to change) need to start working and it can be beneficial for them.
    * Those who know where to save money (the current account in these cases serves politicians, bankers and beggars more) have the opportunity to avoid it. This will mainly concern the richer layer.
    * Then there are people who work, but consider their bank account to be such a safe. Not all of them necessarily rely on the state. These people will probably have quite a problem, because the banks' money was probably largely lent to the states.

    I'm afraid it will lead to the liquidation of the middle class and it will lead to actions like Occupy Wall Street, which is crying on the wrong grave: http://www.svobodni.cz/media/clanky/1380-numerato-zastupce-1–na-wall-street-nazory-ktere-v-televizi-neuslysite/ . (On the other hand, the link here is perhaps carrying wood into the forest, I hope.)

  9. The state debt is paid by those who demand the state the most - ordinary people. Wealthy people who do not rely on the state's bankruptcy will not have a problem and will even make money on it. They will be just ordinary people, who usually have no idea that there is a threat of bankruptcy at all. But that's okay, because they wanted the state the most, so it's exactly who's to blame.

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