If you are alive you likely know about debt, for the bulk of the population it is hard to buy consumer goods without debt. Prior to credit cards, people essentially save either by themselves; went to the “corner” store which offered some credit for many people did not receive a weekly or bi-monthly wage. Farmers sold crops in the fall, paid down their debts and were borrowing again in the spring. Anyone who fell behind began to work the big deal, partly to extend their payments and once in while there really was a big deal; just like sometimes there is a lottery win. In the book A Fate Worse than Debt by Susan George, Penguin Books, London, UK, 1988 the author writes about the third world debt crisis. This is a crisis that has not gone away and in 2008 spread to the first world.

Debt of countries are paid by taxpayers, and as long as the country has money or can gain money they can receive credit – how they manage the country is a different story. In many countries, there is flight capital or money received in one country is quickly taken to another country which overlooks the origins of it, but once deposited is considered good money. There are multiple examples of countries building plants or processing factories which absorb a great deal of money for the country and work at less than 25% capacity. However the political structure benefited and could say look at what we are doing for you. In many countries the leaders enrich themselves and lead very luxurious lives and in many countries once the country is in debt the interest payments continue to mount and to have relief means to follow a agenda not necessarily the best for all its citizens.

The last point is the key, the leaders may talk about better lives for its citizens, but many politicians or leaders or their families end up with far more assets or wealth than they came into the office. The wealth of the country seems to go into the ruling group’s bank accounts. Understanding in most countries, getting elected or taking rule of a country is expensive, those debts are repaid quite fast. Ms. George book focuses on people in the countries around the world where credits by the IMF and World Bank have been given and the effect on the poorest citizens. The poor tend to get poorer, for the government in order to repay the debts most come with either increased exports (raise money) or decrease internal spending, the option of raising taxes is a non starter. Many countries around the word try to increase their exports but their exports then face greater competition which decreases the value of the exports which means the next step is to tighten government spending including decreasing people in the workforce. It is not hard to see how the effects go downwards fast and basic staples of people increase in price.

Linking to dividend paying stocks, some companies export their goods and the debt which is incurred by Third World countries go to purchasing the imported goods. For your investment that is a good thing, if it helps in the home country it can help in another country. The larger issue is how much is your company dependent on these type of deals, if they are too dependent, countries in debt will go through a crisis and need bailouts by countries in surplus and that takes time, willingness to negotiate and getting something to be paid back rather than nothing.

There are more questions than answers, till the next time – to raising questions