Thursday, December 17, 2009

Massive government debt for dummies

Interesting section from my geography textbook-

The Specter of Debt
All of us are aware of the dangers of going too deeply into debt. Borrow too much money, and payments of interest and principal may leave too little for routine needs such as food and clothing, not to mention repairs and replacement of equipment. Individuals, families, villages, and cities must devise budgets and balance incomes against expenditures.

So it is with countries. National governments, like individuals and families, must sometimes borrow to make ends meet. If a drought curtails domestic food production, a government may borrow against future oil or ore exports to pay for urgently needed staples. Should domestic harvests fail in the following year as well, further borrowing will be necessary. This means that the government's future budgets will be burdened by ever-higher “debt retirement” payments, limiting its ability to spend on schools, roads, and clinics. Should the decision be made to raise taxes to help make the payments, the result may be a slowdown in the economy. The cycle of debt is hard to escape.

Underlying Causes
All too often it is not just a food emergency or some other unavoidable problem, but a government's mismanagement that leads to excessive debt. In the postcolonial period, many governments of former colonies sought shortcuts to boost their economies, building dams, factories, and ports that did not justify their huge investments. Of course, the governments and corporations of the former colonial powers were all too willing to do the building, making large profits and even lending the new governments money to build still more.

By the way, that's geography 101, the section on geopolitics.  How is it possible that the entire Democrat party skipped the day of college where they taught this?

1 comment:

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