Monday, May 21, 2012

Why Do Democratic Governments Create Enormous Debt?

There is a trend that is becoming increasingly obvious to even the most indifferent citizen of a democratic nation: Democratic governments all around the world are increasing their national budgets by incurring enormous debts.

Deficit budgets are being supplemented by measures like quantitative easing, which is just another variation of the bailout strategy. This has led to huge national debts in all the developed countries of the world.

This relentless debt accumulation by governments has compromised the future for those currently living in these countries. The proof of the futility of this policy of reckless borrowing has become clearly evident in the economic debacle facing Italy, Spain, Portugal, and Greece. In these countries unemployment has risen and growth has fallen. Although Greece and Rome initiated the rise of Western civilization, they now appear to be the first casualties of its creeping economic chaos.

What is the future for countries that continue to borrow money that they have no way of paying back because of persistent unemployment leading to insufficient national growth rates? This is a question that fills the national news of democratic countries increasingly frequently.

In the meanwhile, policies promoting deficit monetization and quantitative easing continue to be implemented. What this basically means is that money is printed without any goods or services backing it. As any first year college economics student will tell you, this means that all goods and services available in a country will continue to become more expensive. In other words, this is a policy that stimulates inflation.

In the final analysis, inflation means that a democratic government is borrowing money from its citizens for increased taxation to keep the country afloat. Unfortunately as it does this, the citizens become poorer and the national debts even more alarming as less goods and services are produced and consumed both nationally and internationally.

Quantitative easing, however, can only be pursued by countries like the United States that is in charge of the money printing presses. In countries like Greece, for example, quantitative easing is not a choice because that country relies on the Euro, which means that it has to resort to austerity measures that are forcing citizens to be homeless. Austerity measures are the only choice because the Greek government has no control over the money printing presses.

Since the world has become a global village, with democratic nations highly interdependent in many ways, the collapse of a few European countries will create a domino effect, and this will ultimately create a tidal wave that will affect all nations.

Apparently, the welfare of the citizens of any nation is secondary to the success of political parties. In the US, for example, lawmakers appear to be waiting for the aftermath of Election Day to figure out how to introduce a $7 trillion cash hike in addition to numerous spending cuts. The austerity measures that are now taking place in some European countries may be closer than most people think even in countries where the self-sabotaging policy of quantitative easing is still possible.

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