The Debt Balloon - will it ever burst?‏

Another 750bn Euro was issued in debt by the EU and IMF yesterday to try and stop the bankers making even more money on the currency speculation that has been driving governments to the wall and citizens to the streets. But this only creates more debt and interest to be paid back and will result in more austerity for the public sector at a later date.

The EU states, Central Bank and IMF have created short term facilities as lending from private investors has dried up in the face Greece and possibly Portugal and Spain defaulting on their debt and interest payments. It's borrowing from one to pay back another, the cycle just continues and expands, like a giant ballon.

Larry Elliot in the Guardian today highlights the key issues http://www.guardian.co.uk/commentisfree/2010/may/10/eu-kitchen-sink-euro-crisis
"What has happened is this: the crisis of the past three years had itsorigins in an unsustainable build up of private debt. Individuals over extended themselves to buy property and banks became over-leveraged as they bought and sold complex securities derived from mortgages. When the housing bubbles collapsed, the banks faced insolvency and governments stepped in to shore up the financial sector and prevent the most serious recession of the post-war era becoming a second Great Depression."

They succeeded in both aims, but at the expense of shifting the burden of debt from the private to the public sector. There is some irony in financial markets now terrorising governments over budget deficits that have been allowed to deteriorate in order to save the financial markets. However he appears to contradict himself with the following:

"Credibledeficit reduction plans will have to be put in place, and stuck to, in countries big and small. Just as crucially, there has to be stronger growth. Austerity without expansion will result in deficits getting bigger not smaller, even with cuts in spending and higher taxes".

Cutting jobs in the public sector will slow the economy down not aide growth. The ECB could deal a blow to the finance sharks hunting in Greek waters right away, it can do this by "monetizing" the debt of Greece and other debt-laden EU countries by effectively "printing money" (quantitative easing) and buying the debt itself at very low interest rates. Then there would be no need for public sector job reductions.

What no one will tell us is the amount of debt that has been issued can never be paid back and with the interest on top we are simply condeming generations to years of austerity. The reality is this we need to understand that this is all to do with money being issued by the banking sector as debt, we have to call for our money supply to be placed back under democratic control and issued debt free by governments.

To understand this key issue of our time read Michael Rowbotham's book, The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics http://www.amazon.co.uk/Grip-Death-Slavery-Destructive-Economics/dp/1897766408