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Max Keiser

Max Keiser

Posted: July 30, 2010 10:59 AM

France Tries to Reduce Debt by Increasing Debt

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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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