September 2012        

Staggering levels of debt


The diagram below (taken from a recent report by the McKinsey Group of global business and financial consultants) shows the staggering level of debt in the Irish economy. Their analysis places the value of debt in Ireland at over 650 per cent of GDP—well ahead of other heavily indebted countries, including the United States, Japan, Britain, Greece, and Spain.
The result of low interest rates (“easy money”) and government deficits is staggering levels of debt.
Total debt, selected countries, as percentage of GDP
Source: McKinsey Global Institute, “Debt and deleveraging: Uneven progress on the path to growth,” January 2012.
“The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 per cent of GDP. Above 90 per cent, median growth rates fall by 1 per cent, and average growth falls considerably more.”—Reinhart and Rogoff, “Growth in a time of debt,” American Economic Review, May 2010.
     This 650 per cent is made up of personal, non-financial business, government and financial institutions’ debt. Of course a significant amount of the so-called government debt is actually finance’s also, while much of the financial institutions’ debt is just “resting in accounts” in Ireland’s tax haven, the International Financial Services Centre.
     Nonetheless it is evidence of the decay of monopoly capitalism, such is its reliance on debt and debt-led innovations for the meagre growth it has achieved over the last few decades, and further evidence of the specific weakness of Ireland within the global order.
     It also raises questions about many of the “alternatives” that are based on borrowing-led investment, or stimuli that don’t challenge the fundamental question of the ownership of production and wealth.
     Alternatives must have at their core the objective of claiming wealth and production for labour and reducing the control that private capital and debt have over the system—otherwise they are not alternatives and will only exacerbate the contradictions within monopoly capitalism.
[NL]

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