From global post interesting article “world a wash with debt”


How did the countries end up this heavily indebted may be the question that escapes most of us commoners who understanding of the economics is limited.  The article in the link below highlights how and why most of the western nations are heavily indebted.  This crisis must becoming to USA in a bad time when the population is aging and more debt will be required to finance the entitlement programs for retirees. I bet you this is the same thing that happened to Japan and is happening to Europe.  However, I think governments should be sanctioned by citizens on how much they can borrow and on what terms.  Right now the role of borrowing by countries has been left to the central bankers and politicians with little input from the citizens.  Anyway read the article and see we are all in a pickle because this crisis will be in every continent before it is finally over

http://www.globalpost.com/dispatch/news/business-tech/debt-crisis/110801/debt-global-crisis-emerging-markets

Now that you have read the article how is Kenya financing her budget deficits?  I always see CBK issuing Bonds and T bills which bankers buy in huff.  How sound is the Kenya banking system? Could it fall into the same bad debt trap of the Nigerian banks that required the Central bank there to rescue the banks in tune of $4 billion and force most of the banks to consolidate and even to date most the banks in Nigeria are still under capitalized.

Kenya debt balance

Since independence, Kenya has borrowed about Ksh 1,200 billion from external creditors. Though it has
repaid Ksh 3,570 billion – a whopping threefold the amount initially owed – the country still owes Ksh 450
billion. In addition to this external debt, the domestic debt stands at about Ksh 300 billion.
Kenya’s economy is modestly diversified, though most employment is dependent on agriculture, which
contributes 16(2004 estimates) percent of GDP. Kenya enjoyed strong economic growth from independence
until the 1970s. The average GDP growth rate declined from 6.5 percent between the 1960s and the 1970s
to about 2 percent in 1990-1999, below the average population growth rate of 2.5 percent. Private
investments fell by 7 percent in real terms between the late 1980’s and the first half of the 1990s, and
domestic savings rates fell correspondingly from over 20 percent to 16 percent during the same period.

Source http://www.afrodad.org/downloads/publications/Debt%20audit-kenya.pdf

From my casual observation this how Central bankers and banks create the crisis you see today

Treasury will draw up a budget that usually cannot be met by current tax financing

So central bank will be mandated to “print money” by issuing debt

This debt is sold to the banks who in turn sell the debt to the markets

As countries enter recession or depression they default on the debt

OR

 to help the countries not default more debt is issued that what you  hear talk about RAISING debt ceiling in case of USA and bail out in case of Greece

So debt default remedy is more debt .  What happens if all this fighting debt with more debt does not resolve today crisis?

I bet you the biggest ELEPHANT in the world economy is the Toxic debts and worthless assets that banks are still holding onto I think most American Big to fail banks are under capitalized and are holding onto hope that they can keep the game going on.  The looming economy TSUNAMI from Europe may burry them for good.

May be it is time to write off the world DEBT and start all over again from zero. Time for the nuclear option is now at least that what Iceland the first victim of the banking crisis opted to do.

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