Debt, Debt, Debt.
Out of context: Reply #24
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- pr20
Here is how debt works.
A country figured out that next year their expenditure will be $120 but their income (taxes) will only be $100. That means they will be short $20, so they need to either print extra $20 (which they don't want to do as more $ in circulation means lesser value of each $1) or borrow the "missing" $20 from someone to balance their budget.
So they borrow $20 at %10 interest (%1 going to the middle man - the real winner here as they make tooooon of $ by simply connecting people who have some money to invest and people who need money).
So next year assuming their expenses will be similar they will have to come up with $120 (normal expenses) + $22 (debt + interest) = $142. But because they kept their taxes as last year their tax income is only $80 so that year they will have to come up with $62 they are short of! Which they borrow again at %10 interest. So yet another year if they don't do anything they will have to deal with: $120 (expenses) + $69 (debt + interest) = $189 with income of only $80/year!
So the country chooses to do some belt tightening ("austerity measures") and cut their expenditure for next year as they know that with only $80 of income they will have to pay back the $22 and still pay their expenses. So they slash their expenses to only $58 hoping that with income of $80 they will be able to pay expenses and the debt but by cutting the expenses by almost %50 they bring the economy to a standstill so instead of taking in the normal $80 in taxes they only take in $40 and out of that $40 they need to pay they $58 of expenses and $22 of debt (meaning they will be short of $40 - which in turn they have to borrow yet again - but this time at %20 cause the country is in financial trouble).
- Its a great system isn't it!
I love it!fadein11 - Brilliant. So all the time the money is going from most of the people and accumulating in a big pile at one end ? Where ?mikotondria3
- Its a great system isn't it!