To reduce debt, France has announced the sale of State assets.
Paradoxically, these sales will achieve the opposite effect and increase the overall indebtedness of France. Since any buyer of these assets will do so with borrowed money and the money they borrow will come from the over-indebted banking system that had to be recently bailed out by the State.
In other words, the loans used to make the asset purchases will end up right back on the French government's balance sheet.
The same ricochet debt accumulation is playing out in most of the industrialized world as countries look for ways to cut debts after the bailouts of 2009 have failed to generate any inflation, wage growth or pick up in GDP.
The problem is lack of transparency. The banks and their proxy, the various governments who serve them around the world, need to have a thorough accounting of all the debts held on their balance sheets.
Some suspect there is another 50 trillion in bad debts held off the balance sheets of banks and governments yet to be disclosed.
A few weeks ago, Britain announced a package of austerity measures to address the country's 800 billion pound debt problem. The banks and government followed this up with an announcement of a 'discovery' of five trillion pounds of debt they had overlooked (equaling 500% of GDP).
The government in Britain says they will be selling assets to pay down debt. Since no one has cash to pay for these assets, the loans needed to make the purchases will come from the State owned banks and the debts will end up where they came from; but bigger, since the bankers in the UK involved in the deals will pad the transaction with fees that end up increasing the debt (and their bonuses).
Meanwhile, the Bank of England will keep interest rates near zero so that any increase in the debts won't incur any noticeable increase in debt service costs. Until such time as it does.
As long as interest rates stay near zero the debt expansion cycle -- masked as asset sales -- will continue to grow and the interest costs associated with these debts will continue to make up a greater percentage of GDP. Naturally, the government's plan to pay the additional interest cost is to borrow more money.
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Thank you for a very interesting article.
I would like to point out that you are most likely wrong on a few issues. Without knowing the specifics of the deals for which you are speaking I will walk you through the math as best as possible.
Assuming you have a company that is worth 100Bn, a new invest would most likely put down 30bn and borrow 70Bn. So France’s net debt position has improved by at least 30Bn. Moreover, since 70Bn is already on the books at the French national level, the debt would now be transferred to the entity that bought the enterprise. True, France would still be the lender-of-last-resort but there would now be a private company with other assets/collateral that the state could go after should they default. This would, in effect, improve the risk profile of the debt to France at the national level.
Finally, I might add, that France has realized that since it nationalized a lot of these companies, the efficiency of these companies has dropped and, in almost all cases, they are operating at a loss. So in addition to the debt that France currently carries at the national level, it also must cover the losses that those companies make every month. Privatizing them would allow them to be operated more efficiently and remove the onus of covering losses every month.
I hope that helps your rudimentary understanding of how business works.
Best of luck,
Kai
They don't call it the debt-money system for nothing.
Actually, they don't call it the debt-money system.
They call it the private fractional reserve bank-credit money system.
Sounds much nicer.
The other option besides digging yourself deeper into that fractional-reserved hole is the Douglas, Fisher, Graham et al proposal called : A Program for Monetary Reform.
http://www.economicstability.org/history/a-program-for-monetary-reform-the-1939-document
Spread the word.
Debt-free money is the way out.
Bankrupt the Democratic republics,
till the multinational plutocrats can buy it.