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Idiot’s guide to global and domestic debt
Immortal invisible god only wise
by Kumar David
“In light inaccessible hid from our eyes”, is a line from an 1867 hymn set to the tune of a Welsh ballad: it is not a quip about the mystery of global debt but it could well be. Economists don’t enlighten you on the nature and ubiquity of debt because they are muddled themselves. The eclectic hither and thither is recounted in The Economist’s ‘A new era of economics’ – 25 July 2020. There is no shared paradigm, laymen have to cogitate and pick up as best they can. Scientists, finicky about cause and effect cannot suppress the need to frame things in intelligible terms; see if you can pick up anything useful from this idiot’s guide to the ubiquity and explosion of global and domestic public and private indebtedness. Public or national refers to central and local governments. Private is corporate, non-central-bank, bank and household borrowing; the last includes mortgages, personal overdrafts and credit-card indebtedness.
There have been four stages in economic theology since the 1930s. The Keynesian gambit, the neoliberal (Friedman-monetarist) nightmare and the two post-2009 phases. Yes, two phases, the first till about 2018 and the second thereafter which accelerated with Covid-19. I say little on Keynesian macroeconomics or neo-liberalism; the former reigned from the Great Depression till the 1970s when it was invalidated by stagflation, and the latter, that is the neo-liberalism of Pinochet-Regan-Thatcher-IMF, gripped the world by the throat till the 1990s. The last nail in the coffin of dying neo-liberalism was the Great Recession (GR) of 2009-10; the last captain of that sinking ship, Tony Blair, earning himself the epithet Blatcherist. GR proved that unchecked free-market capitalism contained the germs of its destruction in its own DNA, collapsing under its own rationale.
The ratios vary from country to country. In the US Public Debt is about 100% of GDP but semi-Public Debt is small while Corporate and Private Debt are roughly 50% and 70% of GDP. In China Public Debt is not large (48% oh GDP) but Provincial Governments have run wild with infrastructure and waste, which summing up with household debt to over 200% of GDP. In Japan government, debt is 230% of GDP but corporate debt is below 10% and household debt is minimal. For Sri Lanka the big item is Public Debt; nearly 90% of GDP. It doesn’t sound bad, comparatively, but we don’t have the resources to service it.
A feature of the global economy since the 1990s is mounting debt, now astronomical public plus corporate debt, and in the run up to GR acute household mortgages. Strangely, no one asks: “If-all the world is in debt, who is the creditor? Who owns the loot? What the source?” Leaving aside the printing press, a substantive topic of this essay, there are two tangible sources; the enormous wealth accumulated in the hands of the ultra-rich (the “One-Percent”) and public savings in provident funds, social-security coffers and in Japan Post Office Savings accounts. The former is the surplus created by social labour appropriated by capital or siphoned into institutions called private equity, mutual and hedge funds and into mighty investment banks. Maybe half Lanka’s foreign debt is owned to these money-market funds, the other portion to multi-lateral agencies IMF, ADB and World Bank and foreign governments, mainly China and its state banking arms. The point I am driving is that the people of the poor half of the world are deeply in hock to the moguls of international finance capital, including the mighty One-Percent.
The first period of the post-GR phase which lasted for a little less than a decade was characterised in metropolitan centres by measures intended to revive economic growth. Credit was created by central banks (US Fed, EU’s ECB, Japan’s BoJ and limping along, the Bank of England) by the shipload and pumped out to Treasuries, or by purchases of corporate bonds, or shoved into bank vaults. The hope was that there would be investment, growth and employment. It fell flat on its face. Though employment did pick up a bit for reasons too long to detail here, production-capital did not take the ball and run. Instead finance took the money and put it into shares (equities), commercial property and Treasury Bonds, creating an asset bubble.
Central bank money did not go into economic activity; it was siphoned through the ultra-rich into the asset bubble, that is the rich got richer. For this reason, demand for goods and services did not grow (how many bottles of Premier Cru can a millionaire imbibe?). Sans demand, economic growth did not take off in the US, Europe or Japan, hence inflation was stuck below 2% and the economy did not fire up (if inflation escalates, the economy exudes full employment and output is near capacity-output they call it “heating up”). Economic misery in the lower orders created anger and populism (Occupy Movements and radical fundamentalisms). Outrage at the rich getting richer and everyone else getting poorer also triggered the Trump Base, the grip of Marine Le Penn, the popularity of Nigel French, Brexit, near fascists Hungary’s Victor Oban and Poland’s Andrzej Duda, and Hindutva’s Muslim-hating Amit Shah and Narendra Modi. In sum the first phase of post-GR intervention was neither an economic success nor was it politically soothing, it was a failure.
Enter the second post-GR stage starting in 2018 but fouled up and drowned by covid-19. The world’s ruling powers had to take note that growth was not picking up, political resentment was swelling, inflation doggedly low and interest rates peering into the moat of negativity. Then corona hit! It summoned gigantic “stimulus” packages; in the domain of economic theory four schools of were jostling for space.
MMT (Modern Monetary Theory)
MMT is really odd in the eyes of regular economists; I too find it difficult to digest. Were I to exaggerate but only a bit, the theory says print money, print as much as you like, it won’t and it can’t do harm. Governments should not break their heads about deficits, central banks should not let inflation fears hold them back, they should create stimulus money by the bathtub and pour it into investment markets; household should party late into the night. The argument is that by turbo charging the economy with cash, productive activity will take off and rising output will defeat the demon of galloping inflation. The more serious-minded supporters of this school want to keep it going only till inflation and growth pick up and unemployment falls sufficiently, then slacken. But I am not persuaded. When inflation hits it hits fast and hard. Governments and the unwary, soaked in debt, will be overwhelmed by rapidly rising interest rates which will drive them to bankruptcy. Going in search of a free lunch is never unproblematic.
Fiscal splurge driven strategies (FS)
The more conventional last-ditch efforts are Fiscal Splurge (FS) and Monetary Control (MC). The former is the de facto method employed, whether consciously named FS or not, in broke, crisis driven, debt wracked or plain basket economies. While these pejoratives do not all apply to Lanka, some do. The bottom line is that in poor countries with high populist expectations, or enjoying electoral democracy that can oust politicians, governments if they wish to survive, have no option but to resort to fiscal deficits. That is spend more than their revenues to keep the masses stoned, an alternative opiate to religion. In a debt-intoxicated country this means monetary policy and fiscal policy have to merge, the former becomes a service provider to the latter; Prof Laxman transmutes into front office receptionist for President and PM.
In the long-term fiscal profligacy has disastrous consequences that are so well-known that I don’t need to dwell on the it here.
Monetary control and manipulation (MC)
This is typical of the EU; the US is a mix of FS and MC. With MC power rests in the hands of the central bank not government, finance ministry or treasury – FS is the other way round. The prime example of MC is the European Central Bank, I dare say with the Bundesbank breathing down its neck, which drives a chariot whose lowly drays are individual EU governments. BoJ too is not a sub-contractor of the Japanese government. The Reserve Bank of India tried to talk big in the era of Raghuram Rajan but Governors and the Bank have since been cut down to size. Central banks in dominance use interest rates and money supply to manage inflation with an eye on the side turned towards employment and growth.
Restructuring (social concern or state-led)
This is an outlier in a discussion of how capitalist economies (including Scandinavian version) are struggling to cope with explosive debt, income and wealth gaps, and retain social instability. The two key concepts in understanding this fourth option are restructuring and involvement of the state. State-led, but market sensitive and capitalism-accommodative, one party China seems an obvious prototype but it is not an exemplar because this essay is focussed on capitalist (the majority) nations of the world. An imagined President Bernie Sanders Administration in the US is a hypothetical example of this option. I don’t need to explain how this will be different from the US we know, but the point of this essay is that US national debt is large and will be larger in the hypothetical case. At the moment in the debate about coping with a belly-up economy, staggering stimulus packages are on Congress’ table – the Republicans want to cap it at $2 trillion, Democrats to push it up to $3 trillion. Hypothetical Bernie and his Squad will make it larger.
Whatever the version, stimulus money will be part channelled to government (Treasury Bond purchase) and a comparable sum will be siphoned into corporate bonds and private assets. Soaring debt will undermine faith in America’s ability to measure up to its commitments and will damage faith in the dollar as the world’s reserve currency. Debt has come to stay in every corner, an unwelcome guest determined to hang on till there is a global transformation. Sri Lanka is a footnote to the story.
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There’s an ill more dangerous and pervasive than the Coronavirus that’s currently sweeping Sri Lanka. That is the fear to express one’s convictions. Across the public sector of the country in particular many persons holding high office are stringently regulating and controlling the voices of their consciences and this bodes ill for all and the country.
The corrupting impact of fear was discussed in this column a couple of weeks ago when dealing with the military coup in Myanmar. It stands to the enduring credit of ousted Myanmarese Head of Government Aung San Suu Kyi that she, perhaps for the first time in the history of modern political thought, singled out fear, and not power, as the principal cause of corruption within the individual; powerful or otherwise.
To be sure, power corrupts but the corrupting impact of fear is graver and more devastating. For instance, the fear in a person holding ministerial office or in a senior public sector official, that he would lose position and power as a result of speaking out his convictions and sincere beliefs on matters of the first importance, would lead to a country’s ills going unaddressed and uncorrected.
Besides, the individual concerned would be devaluing himself in the eyes of all irrevocably and revealing himself to be a person who would be willing to compromise his moral integrity for petty worldly gain or a ‘mess of pottage’. This happens all the while in Lankan public life. Some of those who have wielded and are wielding immense power in Sri Lanka leave very much to be desired from these standards.
It could be said that fear has prevented Sri Lanka from growing in every vital respect over the decades and has earned for itself the notoriety of being a directionless country.
All these ills and more are contained in the current controversy in Sri Lanka over the disposal of the bodies of Covid victims, for example. The Sri Lankan polity has no choice but to abide by scientific advice on this question. Since authorities of the standing of even the WHO have declared that the burial of the bodies of those dying of Covid could not prove to be injurious to the wider public, the Sri Lankan health authorities could go ahead and sanction the burying of the bodies concerned. What’s preventing the local authorities from taking this course since they claim to be on the side of science? Who or what are they fearing? This is the issue that’s crying out to be probed and answered.
Considering the need for absolute truthfulness and honesty on the part of all relevant persons and quarters in matters such as these, the latter have no choice but to resign from their positions if they are prevented from following the dictates of their consciences. If they are firmly convinced that burials could bring no harm, they are obliged to take up the position that burials should be allowed.
If any ‘higher authority’ is preventing them from allowing burials, our ministers and officials are conscience-bound to renounce their positions in protest, rather than behave compromisingly and engage in ‘double think’ and ‘double talk’. By adopting the latter course they are helping none but keeping the country in a state of chronic uncertainty, which is a handy recipe for social instabiliy and division.
In the Sri Lankan context, the failure on the part of the quarters that matter to follow scientific advice on the burials question could result in the aggravation of Islamophobia, or hatred of the practitioners of Islam, in the country. Sri Lanka could do without this latter phobia and hatred on account of its implications for national stability and development. The 30 year war against separatist forces was all about the prevention by military means of ‘nation-breaking’. The disastrous results for Sri Lanka from this war are continuing to weigh it down and are part of the international offensive against Sri Lanka in the UNHCR.
However, Islamophobia is an almost world wide phenomenon. It was greatly strengthened during Donald Trump’s presidential tenure in the US. While in office Trump resorted to the divisive ruling strategy of quite a few populist authoritarian rulers of the South. Essentially, the manoeuvre is to divide and rule by pandering to the racial prejudices of majority communities.
It has happened continually in Sri Lanka. In the initial post-independence years and for several decades after, it was a case of some populist politicians of the South whipping-up anti-Tamil sentiments. Some Tamil politicians did likewise in respect of the majority community. No doubt, both such quarters have done Sri Lanka immeasurable harm. By failing to follow scientific advice on the burial question and by not doing what is right, Sri Lanka’s current authorities are opening themselves to the charge that they are pandering to religious extremists among the majority community.
The murderous, destructive course of action adopted by some extremist sections among Muslim communities world wide, including of course Sri Lanka, has not earned the condemnation it deserves from moderate Muslims who make-up the preponderant majority in the Muslim community. It is up to moderate opinion in the latter collectivity to come out more strongly and persuasively against religious extremists in their midst. It will prove to have a cementing and unifying impact among communities.
It is not sufficiently appreciated by governments in the global South in particular that by voicing for religious and racial unity and by working consistently towards it, they would be strengthening democratic development, which is an essential condition for a country’s growth in all senses.
A ‘divided house’ is doomed to fall; this is the lesson of history. ‘National security’ cannot be had without human security and peaceful living among communities is central to the latter. There cannot be any ‘double talk’ or ‘politically correct’ opinions on this question. Truth and falsehood are the only valid categories of thought and speech.
Those in authority everywhere claiming to be democratic need to adopt a scientific outlook on this issue as well. Studies conducted on plural societies in South Asia, for example, reveal that the promotion of friendly, cordial ties among communities invariably brings about healing among estranged groups and produces social peace. This is the truth that is waiting to be acted upon.
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By Sanjeewa Jayaweera
It was on 3rd January 1972 that our family arrived in Karachi from Moscow. Our departure from Moscow had been delayed for a few weeks due to the military confrontation between Pakistan and India. It ended on 16th December 1971. After that, international flights were not permitted for some time.
The contrast between Moscow and Karachi was unbelievable. First and foremost, Moscow’s temperature was near minus 40 degrees centigrade, while in Karachi, it was sunny and a warm 28 degrees centigrade. However, what struck us most was the extreme warmth with which the airport authorities greeted our family. As my father was a diplomat, we were quickly ushered to the airport’s VIP Lounge. We were in transit on our way to Rawalpindi, the airport serving the capital of Islamabad.
We quickly realized that the word “we are from Sri Lanka” opened all doors just as saying “open sesame” gained entry to Aladdin’s cave! The broad smile, extreme courtesy, and genuine warmth we received from the Pakistani people were unbelievable.
This was all to do with Mrs Sirima Bandaranaike’s decision to allow Pakistani aircraft to land in Colombo to refuel on the way to Dhaka in East Pakistan during the military confrontation between Pakistan and India. It was a brave decision by Mrs Bandaranaike (Mrs B), and the successive governments and Sri Lanka people are still enjoying the fruits of it. Pakistan has been a steadfast and loyal supporter of our country. They have come to our assistance time and again in times of great need when many have turned their back on us. They have indeed been an “all-weather” friend of our country.
Getting back to 1972, I was an early beneficiary of Pakistani people’s love for Sri Lankans. I failed the entrance exam to gain entry to the only English medium school in Islamabad! However, when I met the Principal, along with my father, he said, “Sanjeewa, although you failed the entrance exam, I will this time make an exception as Sri Lankans are our dear friends.” After that, the joke around the family dinner table was that I owed my education in Pakistan to Mrs B!
At school, my brother and I were extended a warm welcome and always greeted “our good friends from Sri Lanka.” I felt when playing cricket for our college; our runs were cheered more loudly than of others.
One particular incident that I remember well was when the Embassy received a telex from the Foreign inistry. It requested that our High Commissioner seek an immediate meeting with the Prime Minister of Pakistan, Mr Zulifikar Ali Bhutto (ZB), and convey a message from Mrs B. The message requested that an urgent shipment of rice be dispatched to Sri Lanka as there would be an imminent rice shortage. As the Ambassador was not in the station, the responsibility devolved on my father.
It usually takes about a week or more to get an audience with the Prime Minister (PM) of a foreign country due to their busy schedule. However, given the urgency, my father spoke to the Foreign Ministry’s Permanent Sectary, who fortunately was our neighbour and sought an urgent appointment. My father received a call from the PM’s secretary around 10 P.M asking him to come over to the PM’s residence. My father met ZB around midnight. ZB was about to retire to bed and, as such, was in his pyjamas and gown enjoying a cigar! He had greeted my father and had asked, “Mr Jayaweera, what can we do for great friend Madam Bandaranaike?. My father conveyed the message from Colombo and quietly mentioned that there would be riots in the country if there is no rice!
ZB had immediately got the Food Commissioner of Pakistan on the line and said, “I want a shipload of rice to be in Colombo within the next 72 hours!” The Food Commissioner reverted within a few minutes, saying that nothing was available and the last export shipment had left the port only a few hours ago to another country. ZB had instructed to turn the ship around and send it to Colombo. This despite protests from the Food Commissioner about terms and conditions of the Letter of Credit prohibiting non-delivery. Sri Lanka got its delivery of rice!
The next was the visit of Mrs B to Pakistan. On arrival in Rawalpindi airport, she was given a hero’s welcome, which Pakistan had previously only offered to President Gaddafi of Libya, who financially backed Pakistan with his oil money. That day, I missed school and accompanied my parents to the airport. On our way, we witnessed thousands of people had gathered by the roadside to welcome Mrs B.
When we walked to the airport’s tarmac, thousands of people were standing in temporary stands waving Sri Lanka and Pakistan flags and chanting “Sri Lanka Pakistan Zindabad.” The noise emanating from the crowd was as loud and passionate as the cheering that the Pakistani cricket team received during a test match. It was electric!
I believe she was only the second head of state given the privilege of addressing both assemblies of Parliament. The other being Gaddafi. There was genuine affection from Mrs B amongst the people of Pakistan.
I always remember the indefatigable efforts of Mr Abdul Haffez Kardar, a cabinet minister and the President of the Pakistan Cricket Board. From around 1973 onwards, he passionately championed Sri Lanka’s cause to be admitted as a full member of the International Cricket Council (ICC) and granted test status. Every year, he would propose at the ICC’s annual meeting, but England and Australia’s veto kept us out until 1981.
I always felt that our Cricket Board made a mistake by not inviting Pakistan to play our inaugural test match. We should have appreciated Mr Kardar and Pakistan’s efforts. In 1974 the Pakistan board invited our team for a tour involving three test matches and a few first-class games. Most of those who played in our first test match was part of that tour, and no doubt gained significant exposure playing against a highly talented Pakistani team.
Several Pakistani greats were part of the Pakistan and India team that played a match soon after the Central Bank bomb in Colombo to prove that it was safe to play cricket in Colombo. It was a magnificent gesture by both Pakistan and India. Our greatest cricket triumph was in Pakistan when we won the World Cup in 1996. I am sure the players and those who watched the match on TV will remember the passionate support our team received that night from the Pakistani crowd. It was like playing at home!
I also recall reading about how the Pakistani government air freighted several Multi Barrell artillery guns and ammunition to Sri Lanka when the A rmy camp in Jaffna was under severe threat from the LTTE. This was even more important than the shipload of rice that ZB sent. This was crucial as most other countries refused to sell arms to our country during the war.
Time and again, Pakistan has steadfastly supported our country’s cause at the UNHCR. No doubt this year, too, their diplomats will work tirelessly to assist our country.
We extend a warm welcome to Mr Imran Khan, the Prime Minister of Pakistan. He is a truly inspirational individual who was undoubtedly an excellent cricketer. Since retirement from cricket, he has decided to get involved in politics, and after several years of patiently building up his support base, he won the last parliamentary elections. I hope that just as much as he galvanized Sri Lankan cricketers, his political journey would act as a catalyst for people like Kumar Sangakkara and Mahela Jayawardene to get involved in politics. Cricket has been called a “gentleman’s game.” Whilst politics is far from it!.
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Believe me, seeing certain videos, on social media, depicting action, on the dance floor, at some of these entertainment venues, got me wondering whether this Coronavirus pandemic is REAL!
To those having a good time, at these particular venues, and, I guess, the management, as well, what the world is experiencing now doesn’t seem to be their concerned.
Obviously, such irresponsible behaviour could create more problems for those who are battling to halt the spread of Covid-19, and the new viriant of Covid, in our part of the world.
The videos, on display, on social media, show certain venues, packed to capacity – with hardly anyone wearing a mask, and social distancing…only a dream..
How can one think of social distancing while gyrating, on a dance floor, that is over crowded!
If this trend continues, it wouldn’t be a surprise if Coronavirus makes its presence felt…at such venues.
And, then, what happens to the entertainment scene, and those involved in this field, especially the musicians? No work, whatsoever!
Lots of countries have closed nightclubs, and venues, where people gather, in order to curtail the spread of this deadly virus that has already claimed the lives of thousands.
Thailand did it and the country is still having lots of restrictions, where entertainment is concerned, and that is probably the reason why Thailand has been able to control the spread of the Coronavirus.
With a population of over 69 million, they have had (so far), a little over 25,000 cases, and 83 deaths, while we, with a population of around 21 million, have over 80,000 cases, and more than 450 deaths.
I’m not saying we should do away with entertainment – totally – but we need to follow a format, connected with the ‘new normal,’ where masks and social distancing are mandatory requirements at these venues. And, dancing, I believe, should be banned, at least temporarily, as one can’t maintain the required social distance, while on the dance floor, especially after drinks.
Police spokesman DIG Ajith Rohana keeps emphasising, on TV, radio, and in the newspapers, the need to adhere to the health regulations, now in force, and that those who fail to do so would be penalised.
He has also stated that plainclothes officers would move around to apprehend such offenders.
Perhaps, he should instruct his officers to pay surprise visits to some of these entertainment venues.
He would certainly have more than a bus load of offenders to be whisked off for PCR/Rapid Antigen tests!
I need to quote what Dr. H.T. Wickremasinghe said in his article, published in The Island of Tuesday, February 16th, 2021:
“…let me conclude, while emphasising the need to continue our general public health measures, such as wearing masks, social distancing, and avoiding crowded gatherings, to reduce the risk of contact with an infected person.
“There is no science to beat common sense.”
But…do some of our folks have this thing called COMMON SENSE!
