Routinely lending Governments are unstable pyramid-schemes [basic state economy]
- From: "J.H.Boersema" <joshb@xxxxxxxxx>
- Date: 22 Feb 2008 09:54:22 GMT
When a government makes a loan or sells an I-owe-you-certificate,
the Government gets money in exchange for giving out more money in
the future. When that future comes, the Government not only has the
gap in finance it had to borrow for to begin with - thus avoiding to
cut either corruption or heighten taxation - it also has to pay back
the money and on top of that the interest. That means an even bigger
gap in finances because the loaned money has been spend, the problem
has not been solved (over-spending, corruption or under taxing), the
principle sum must be payed back, and the interest. Corruption might
also have increased in the mean-time because light weed it tends to
grow bigger if you don't cut it back, tightening Government funding
even more. Then the Government will need to lend even more then
before to cover all these expenses, causing an even bigger finance
gap after that, and so on, until the Government is bankrupt and the
country in chaos (perhaps ripe for a dictatorship to jump in with
"violent order out of chaos").
Example:
Government of fantasy country Hazarat (inflation 0% for simplicity).
They never raise taxes, their spending and taxes are always the same,
they spend more then they tax and finance the rest with taking loans.
How does that work out ...
Year 1 Income from taxation: 100 billion
Spending: 120 billion
-------- +
Finance gap: 100 b - 120 b = 20 billion
-> Selling bonds and loans at 10% over 1 years for sum: 20 billion
Doesn't that seem easy: no taxes, just some loans from rich people ...
Year 2 Income from taxation: 100 billion
Spending: 120 billion
+Spending to pay back loans: 20 billion
+Spending to pay back interest on those loans at 10% = 2 billion
-------- +
Finance gap (over-spending + lending): 100 b - 120 b - 20 b - 2 b
= 42 billion lack of funds
-> Selling bonds and loans at 10% over 1 years for sum: 42 billion
(Rent lost to (rich) people who were rich enough to lend: 2 billion.)
Year 3 Income from taxation: 100 billion
Spending: 120 billion
+Spending to pay back loans: 42 billion (!)
+Spending to pay back interest on loans at 10% = 4.2 billion
-------- +
Finance gap (over-spending + lending): 100 b - 120 b - 42 b - 4.2 b
= 66.2 billion
-> Selling bonds and loans at 10% over 1 years for sum: 66.2 billion
(Rent lost to (rich) people who were rich enough to lend: 4.2 billion.)
Year 4 Income from taxation: 100 billion
Spending: 120 billion
+Spending to pay back loans: 66.2 billion (!)
+Spending to pay back interest on loans at 10% = 6.62 billion
-------- +
Finance gap (over-spending + lending): 100 b - 120 b - 66.2 b - 6.62 b
= 92.82 billion
-> Selling bonds and loans at 10% over 1 years for sum: 92.82 billion
(Money lost to (rich) people who were rich enough to lend: 6.62 billion.)
Year 5 gap: 100 b - 120 b - 92.82 b (loan) - 9.282 b (%) = 122.102 billion
-> Takes loans 10% / 1 year for 122.102 billion, lost 9.282 b
Year 6 gap: 100 b - 120 b - 122.102 b (loan) - 12.2102 b (%) = 154.3122 b
-> Takes loans 10% / 1 year for 154.3122 billion, lost 12.2102 b
Year 7 gap: 100 b - 120 b - 154.3122 b (loan) - 15.43122 b (%) = 189.74342 b
-> Takes loans 10% / 1 year for 189.74342 billion, lost 15.43122 b
Notice how while the loans get "crazy" high, above all income, they
are financed by yet new loans - the amount "lost" through rent
increases at a more "realistic" speed of a few billion each year.
That is effectively taxation money given to people who instead of
using money to buy things, are gambling with it. But it is real
money that buys real products / services: these parasites don't do
anything, they gamble; they don't lose, it is the working public
that loses when it has to produce the goods / services these parasites
buy. The loss is small enough for a country to go on like this for
a long time, because only the interest is the money that is actually
truly lost, the rest is just accounting. This issue becomes dangerous
when the amount lost to rent payed starts to become a significant
burden. When the rent to be payed is higher then all income through
taxation + new loans, then the country can't pay it debt and its
effectively bankrupt. That would cause it to be unable to write out
new debt certificates to pay for the old ones, since nobody wants to
lend to a bankrupt entity anymore, knowing that the risk of not being
payed is high. Then the pyramid game collapses in on itself.
A Government that lends routinely is a disintegrating Government.
This may lead to economic chaos, which has a tendency to produce
a police state / dictatorship ... because the corrupt people who
caused these things still have Government power. With brutality
and violence is their natural way to deal with a collapsing order.
Year 8 gap: 100b -120b -189.74342b [loan] -18.994342b [%] = 228.717762b
-> Takes loans 10% / 1 year for 228.937762 billion, lost 18.994342b
Year 9 gap: 100b -120b -228.717762b [loan] -22.8717762b [%] = 271.5895382b
-> Takes loans 10% / 1 year for 271.5895382 billion, lost 22.8717762b
Year 10 gap: 100b -120b -271.5895382b [loan] -27.15895382b [%] = 318.748492b
-> Takes loans 10% / 1 year for 318.748492 billion, lost 27.15895382b
Year 11 gap: 100b -120b -318.748492b [loan] -31.8748492b [%] = 370.6233412b
-> Takes loans 10% / 1 year for 370.6233412 billion, lost 31.8748492b
Year 12 gap: 100b -120b -370.6233412b [loan] -37.06233412b [%] = 427.6856753b
-> Takes loans 10% / 1 year for 427.6856753 billion, lost 37.06233412b
Year 13 gap: 100b -120b -427.6856753b [loan] -42.76856753b [%] = 490.4542429b
-> Takes loans 10% / 1 year for 490.4542429 billion, lost 42.76856753b
Year 14 gap: 100b -120b -490.4542429b [loan] -49.04542429b [%] = 559.4996672b
-> Takes loans 10% / 1 year for 559.4996672 billion, lost 49.04542429b
Year 15 gap: 100b -120b -559.4996672b [loan] -55.94996672b [%] = 635.4496339b
-> Takes loans 10% / 1 year for 635.4496339 billion, lost 55.94996672b
Year 16 gap: 100b -120b -635.4496339b [loan] -63.54496339b [%] = 718.9945972b
-> Takes loans 10% / 1 year for 718.9945972 billion, lost 63.54496339b
Year 17 gap: 100b -120b -718.9945972b [loan] -71.89945972b [%] = 810.8940570b
-> Takes loans 10% / 1 year for 810.8940570 billion, lost 71.89945972b
Year 18 gap: 100b -120b -810.8940570b [loan] -81.08940570b [%] = 911.9834627b
-> Takes loans 10% / 1 year for 911.9834627billion, lost 81.08940570b
Year 19 gap: 100b -120b -911.9834627b [loan] -911.9834627b [%] = 1023.181809b
-> Takes loans 10% / 1 year for 1023.181809b billion, lost 91.19834627b
Year 20 gap: 100b -120b -1023.181809b[loan] -102.3181809b[%] = 1145.49999b
-> Takes loans 10% / 1 year for 1145.49999b billion, lost 102.3181809b
After only 20 years of that "great and easy lending policy," the
amount of money lost each year to people who can and are lending, is
equal to the amount of money taxed from the public. One might say:
all taxation income is spend on loan rent profit for lenders, while the
entire budget and the money to pay the principled loaned sums is
generated from yet new loans.
What happens when taxes were increased, instead:
Year 1 Income from taxation: 100 billion
Spending: 120 billion
-------- +
Finance gap: 100 b - 120 b = 20 billion
-> Taxing the public (that includes the rich & greedy) for another
20 billion
Year 2 Income from taxation: 120 billion
Spending: 120 billion
-------- +
Finance gap: 120 b - 120 b = 0 billion
Year 3 Income from taxation: 120 billion
Spending: 120 billion
-------- +
Finance gap: 120 b - 120 b = 0 billion
Year 4 gap: 120 b - 120 b = 0 b
Year 5 gap: 120 b - 120 b = 0 b
Year 6 gap: 120 b - 120 b = 0 b
Year 7 gap: 120 b - 120 b = 0 b
Year 8 gap: 120 b - 120 b = 0 b (... etc) The system is completely stable.
What happens if spending is cut:
Year 1 Income from taxation: 100 billion
Spending: 120 billion
-------- +
Finance gap: 100 b - 120 b = 20 billion
-> Cutting spending with 20 billion for next year (assuming it
was already spend)
Year 2 Income from taxation: 100 billion
Spending: 80 billion
-------- +
Finance gap: 100 b - 80 b - 20 b [last year overrun] = 0 billion
Year 3 Income from taxation: 100 billion
Spending: 100 billion (up again)
-------- +
Finance gap: 100 b - 100 b = 0 billion
Year 4 gap: 100 b - 100 b = 0 b
Year 5 gap: 100 b - 100 b = 0 b
Year 6 gap: 100 b - 100 b = 0 b
Year 7 gap: 100 b - 100 b = 0 b (... etc). The system is stabilized
after a hit is taken to account for previous year over-spending.
(Note that if "politicians group A" causes fiscal chaos, and then
"politicians group B" attempts to correct it, it is under *their*
"politicians group B" its regime that the damage is going to be taken
if a spending-cut is going to be used to correct the problem in
year 2. Group A happily messes with the finances in year 1, elections
in year 2 and maybe they know it will be chaos and they run away to
Mexico to avoid being elected because the system is almost collapsing,
then Group B comes to power and tries to correct it by cutting spending,
if that is even possible at that point - it might not be possible to
correct major fiscal chaos just by cutting spending and increasing
taxation to pay down the debt to get out of the cycle of more and more
debt. --- Then in theory, once group B has caused pain in the country
to correct the financial problem by more taxation and less spending,
group A comes back in claiming that the years under group B had been
harsh, now its time for something new. They then may start lending and
cutting taxes again, increase spending. It is therefore always important
as voters, to notice that those politicians that start lending are
cutting holes in the Government to make it sink. It is they who are
causing problems, and it is they that should be immediately thrown out
if they lend just a single coin. Government never lends money: Government
takes it or cuts spending, and otherwise there is room in prison for
tax evaders. That is a system that remains stable, and that in the end
causes comparatively major gains for the taxed public, since the cost
of paying interest and then fiscal chaos is many times greater then the
taxation is going to be. Want to live in a country without taxation ?
Then you will need to pay for new roads, water lines and a power grid
privately out of your own pocket, or accept to live in a country without
roads and other such major works. Chances are it will be much much more
expensive on a person then taxation would be (depending on corruption).)
Amazing isn't it that in only 20 years a country can be completely
ruined by a Government that routinely lends money to pay for expenses,
while it all starts to apparently innocent.
At the point where the Government is in deep debt and essentially
bankrupt, it will be very difficult to get out of that previously
created financial chaos. It is not just some financial losses that
will have to be taken, the losses can not be payed down anymore regardless
of the amount of cut spending or increased taxation (unless that taxation
would be so high that the country isn't worth living in anymore anyway:
crushing taxation.) One way to handle the problem is to simply
default on all debt. Problem remains that a lot of money is left in the
hands of people who have previously taken it from the Government.
Some people may be ruined by a Government defaulting, others remain
rich as they got out ahead of the collapse. This money may also have
been moved into other currencies. Defaulting on all Government debts
and introducing a new currency seems to be the cleanest way out,
provided that "honest & clueless people from public" get a compensation
for some of their losses if they really need them and had earned them.
A nationalized pension system providing reasonable living conditions
for everyone too old to work means that while taxes have to be raised,
pension payments can be proportionally lowered. If Government corruption
is low, that simplifies the pension system and cuts out private profit
and advertising overhead. This would be useful because if older people
lose all their money in a currency chance and Government bond default,
they will then end up being supported on a nationalized pension (a
pension system controlled by Government). Foreign owners of the country
its currency will luck out. They had the chance to spend the money back
in and not hoard it. One could make an exception for actual trade
scraps around the edges, then foreign traders of actual goods / services
don't get hurt, since their services / goods are useful and zapping all
their running funds is not a nice way to treat future trading partners.
Note that at some point along the pyramid scheme, one does have the
following choice: either lend more to pay for current loans, or don't
and then face the problems of having no budget at all (taking the hit).
Once the scheme starts, it gets more and more difficult to get out.
One thing that Governments may do to hide this pyramid scheme, is
for instance start a war. When they start a war the public looks the
other way, and there is an excuse for higher taxation, which can then
in part be used to pay off debt while the public thinks it is for a war.
The public gets all fired up, works hard pays higher taxes without
complaining, and blames the problems on the military enemy. That is
great, because the public doesn't know how the money is spend exactly.
The real enemy is right at the head of the state and in the financial
sector. Needless to say in most cases the persons running a state in
such a way (those causing the pyramid scheme to start and/or worsen)
are one network of people with the recipients of the interest on
the loans (unless they are also clueless and think lending for a
Government is a good option - it is not ! ). Clueless or not: the
politicians who start / expand a Government lending program cause
damage and need to be thrown off. Perhaps they can be prosecuted for
gross negligence of the finances of the state.
--
_ _ /_\ _ _ http://www.jhwh.be sign petition for Democratic
\ /v`vvv\ / Authorities Ventures Investments Demarcations
/_\_#_#_/_\ constitution today: http://www.jhwh.be/petition
\ / #115 http://www.xs4all.nl/~joshb/no-id-theft.html
.
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