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Soapbox: Piling on the pounds… dollars, euros

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The UK government’s debt has passed the £2 trillion mark for the first time. We heard the news, shrugged, shook our heads in wonder, and shuffled on. The invisible policeman at our elbow says “nothing to see here”. We try not to gaze at the prostrate body.

As we stumble on a little voice inside our head trills: “£2 trillion – phew! That’s more than all the goods and services the UK produces each year”. Compared to the national debt of the US, now approaching $27 trillion, it’s a midget sum.

The overwhelming response to the economic chaos caused by government responses to Covid-19 has been to throw trillions of fiat cash at it. The good news is, that’s batted away an immediate economic collapse. The bad news is – the collapse is postponed, not eliminated.

The UK is not alone in racking up more debts – global debt in the first three months of 2020 was a staggering $258 trillion. The global debt-to-GDP ratio went to a record 331%. The world now has three times more debt than the value of its annual products.
There are plenty of (metaphorical) bodies lying in the street; no amount of ventilators will be enough.

A slipped mask

Everyone is obsessed with facemasks right now. But the more important mask – debt sustainability – is starting to look a bit threadbare.

Six million individuals in the UK – and millions more around the world – have been unable to keep up with household bills in the crisis. In the US, 30 million people have lost their jobs and 23% of American households say they can’t afford enough food. One of the UK’s struggling said: “when you get paid again, you have got to pay that off and it starts over again”. Governments don’t have that problem – they can borrow for years ahead; and when sovereign debts come due, they can be rolled-over.

The Financial Times published an editorial in April with the headline “printing money is valid response to the coronavirus crisis”. It said ‘helicopter money’ – giving cash directly to the public – should “remain an option”. This has happened at warp speed in the UK, the US, India, and other countries. People have been ‘locked down’, unable to go to their work, and governments have given them cash to stay at home – cash which has been borrowed.

There’s only one reason governments can be so blasé about handing out borrowed cash to individuals and businesses – fiat money, the banknote in your pocket, is cheap right now. If you consider the rock-bottom interest rates set by central banks around the world you can see how cheap it is to borrow money, except in Argentina, where the annual rate is currently 38% – but who would want to borrow an Argentine Peso?

Crunch time a year from now

The sums being thrown around are so vast they’re difficult to grasp – millions have become billions, have become trillions.

The OECD (Organisation for Economic Cooperation and Development) published in July a report which forecast that unemployment among its 37 member-nations will reach almost 10% by the end of 2020, almost twice that at the end of 2019. Governments face a double-whammy – tax revenues will plunge, more people will need welfare support, governments will scarcely be able to cover the latest monthly credit card bill, borrowings will grow.

A shrunken and shrinking economy – deflation – is a government’s nightmare. So they all try to achieve a small amount of inflation – about 2% a year in the UK and the US. All debts have to be paid sometime; for now, interest payments are low enough to deal with. Let the debt go hang!

Glint is here for you

All this paper money being chucked around is why Glint was invented – to strip away the masks and deal with reality. With Glint you can use gold as money – you can avoid the masked traps of deflation or inflation. And, when in September, Glint introduces its new peer-to-peer capability, you can instantly send your gold to anyone you like.

Download the Glint App to start saving and spending your gold

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