Greece, Italy, Spain, Portugal and many other countries spent themselves into deep trouble by pretending their economies were so buoyant that they could easily borrow more and more.
They must have been relating debt to gross domestic product (GDP), and if your GDP is looking good, why not borrow a bit more? You only have to meet the interest and portion of principle repayment this year, so why not borrow a bit more? Surely, if you borrow a billion and feed that into the economy, that's a billion more into GDP with only about eight per cent repayable in that year, so that's OK?
Then next year, we will look at GDP, find it was one billion bigger so we can borrow another billion with only eight per cent of that as a cost and we will look even better, and so on and so on.
Well, it didn't seem to work. These borrowings were financing social costs that made life easier for voters so everyone is happy. They were not spent on investments that bore good returns in the future. They were not self-funding the necessary repayments. Then came 2008 which signalled the end of economies appearing to be getting bigger and bigger and they did the unthinkable; they got smaller! And that debt was still there.
And we can't even pay the interest on the debt now. Oh well, we'll just have to borrow more to pay the interest.
Somebody else will be in power soon and have the problem.
Oh hell, the economy is getting worse! Well, we'll have to stimulate it with some more spending. That way the GPD will look like it's getting bigger again while we negotiate for a bail out of our failing banks by pretending they are looking up with the increased level of business.
Let's make a new highway or two. That will put lots of people to work, they will be paid wages and pay tax, so we'll see some more fiscal revenue coming in and folks will think we are on the way to recovery.
What do you mean taxes are only about two per cent of the expenditure on the highway? These are jobs man jobs, that's what people want, isn't it? What do you mean the jobs won't last, but the loan takes 20 years to pay off. We need jobs, man jobs!
Besides, we in T&T have this stream of oil and gas revenue coming in. Surely, that's enough to repay these massive borrowings we are building up?
What do you mean we are spending all that revenue faster than we are earning it? You don't understand macroeconomics or what? Think big, man.
As soon as (or even before) we have completed the Point highway by the most expensive route possible, we will start another one to Mayaro. Jobs, man, jobs! What do you mean we will have to maintain that highway now as well as all the original roads? You don't understand the value of jobs?
And who is this guy saying it look more like a Penal highway than a Point Fortin highway? Look, you all better shut them people up quick before they find out what we doing eh. You forget to send them hampers?
Looks familiar? We have the world to look at for examples. They say if you keep doing the same thing all the time and expecting to get a different outcome, that's a sign of madness.
Reg Potter
Glencoe