Solving world debt with clever guesswork

As you’ve probably heard by now, the Cold War is officially a draw.

The old philosophies of Communist Socialism and free-market Capitalism have both failed — the fact that one failed before the other is really neither here nor there in the grand scheme of things.

The former collapsed because of political constraints that actively discouraged entrepreneurship and individual endeavour, favouring a mentality that everyone must be equal and no-one disadvantaged more than any other.

If that means no-one gets ahead, so be it.

The latter collapsed because of its promotion of untrammelled entrepreneurship, favouring individual endeavour even at the expense of the community.

By rewarding selfishness, the system concentrates the wealth in the hands of people who do not (by necessity) have the interests of the community at heart. The “trickle-down effect” does not, in fact, exist.

It may not have been entirely obvious at the time, but at this remove it’s clear that neither system ever really had a hope.

The Communist state literally went broke, and the home of capitalism has deemed it necessary to nationalise its banks and place legislative controls on the behaviour of corporations.

Scary, huh? You want to know how scary? Apparently the total value of worldwide debt now exceeds one quadrillion US dollars.

That’s even more than I make in a whole year. How can anyone be expected to repay such a massive debt?

Well, take the advice of the inimitable Douglas Adams: Don’t Panic.

Now, I can’t particularly advise you on how to avoid the impulse to panic, but I can tell you it won’t do any good.

Panicking certainly won’t make a quadrillion dollars appear, so you may as well not.

(Secretly, between you and me, I’m not sure about that “quadrillion” figure. I think some economist somewhere realised that “trillion” was starting to sound like not all that much money, but didn’t want to be so obvious as to say “gazillion”. Let’s just say that the total value of worldwide debt is a whole bunch and leave it at that.)

Now, I’ve used a phrase several times that I hope you picked up on. “The value of worldwide debt”.

Didn’t notice? Read it and skimmed on past? That’s the problem, you see.

The current crisis has been triggered by a lot of people perceiving debt as having some intrinsic value, and buying and selling it as if it were an asset.

When there wasn’t enough of it, they sold cheap mortgages to people with no hope of paying them back, so as to create more debt, which could then be sold.

Brilliant, no?

No! Repeat after me: debt has no value unless it can be repaid.

What’s happening right now is that a lot of people have to sit down and read their bits of paper and figure out how much they are actually worth, and how much is just paper.

The US Treasury has handed them $700 billion to calm them down while they do the sums. That is all.

(And, quite literally, the $700 billion figure was plucked out of the air — those drafting the bailout didn’t want to write down “a really big amount
of money” so took a rough guess.)

So a problem created by guesswork and whimsy is being solved by guesswork and whimsy.

And at the end of it, there will be restraints on the selfish behaviour at its core.

That can’t be all bad.

Matthew JC. Powell has lost money in the recent crash.

Feel his pain on

mjcp@optusnet.com.au

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