Most countries in the developed world now suffer from the excessive weight of their public debt, the level in the EU ranges from 47% of GDP for Denmark to 153% for Greece. In France, it reached 86% of GDP, a proportion similar to that of the United States.
But the topic of most concern prégnant the considerable weight of debt service in state budgets. In France, payment of debt interest this year became the first budget item with 46.9 billion euros, before those of National Education and Defense. Now, as the diagnostic regularly the Court of Auditors, a budget deficit the next, the French economy recorded growth rates insufficient to allow hope for a stabilization of the debt. Yet in 1974, the French public debt represented only 14.5% of GDP. How did we get here?
In practice, this means that governments are obliged to borrow on the markets in bonds, with interest. These are the famous comparable Treasury bonds (OATs). Since 1974, Agence France Trésor has thus remunerated its debt securities, whereas before the state did not pay any interest. However, the discounted sum of all debt interest payments in 1974 is in France around 1200 billion, of the 1 641 billion of the total public debt.
The virtuous idea of this mechanism took effect in 1974 was to encourage the state to borrow less and therefore less spending to limit inflation risks. Now, with hindsight, we see that the economic sliders that prevailed before this institutional reform of 1974 are much more enviable since – especially on the front of the public debt and inflation – the latter having the same packed in the early 1980. in fact, according to the IMF, more a state is in debt and its room for maneuver is small and limited growth phases, with the social consequences that we know.
In addition, participating in auctions of government bonds, banks receive interest with a single set of accounting records, obligations that are then incorporated into various financial products. If the monopoly of money creation of banks can be justified for loans to businesses and individuals, due to the administrative burden this, massive and sustained puncture performed by banks on state budgets is detrimental considerable anomaly citizens.
Maurice Allais, our only Nobel laureate in economics, had seen, and would even advocate in 1999 in a book entitled The World Crisis Today, that money creation only responsibility of the State . A middle way would be to give the State the right to borrow without interest to the central bank of any reasonable proportion to its GDP and concerted manner within the framework of the European Union.
The international community is now more choice but to get out smartly this system to the questionable legitimacy, respect for the value of bonds existing State except to incur hypoxia savings in time, a series of austerity measures and rising unemployment.
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It really is unlikely that anyone can see a point when United states creditors may lose endurance, say, a month prior to that will. The famous investor Warren Buffett has confirmed the system can remain in this kind of state for an indefinite period. A factor triggering the Oughout. S. default may be simply “a spark” that would create a domino effect, like, for example, treasury bonds withdrawal with a large international creditor. The downturn is likely to start when there is the circumstantial evidence of something becoming wrong, and to be activated by a spark, causing an additional cascade of events, which includes those of a psychological character. For example, while the global essential oil demand fell by a maximum of 5% following the recent problems, the price of oil fell only by more than 3 times. This is the mindset of the market.