How colonial powers handled sovereign debts of “weaker nations”?
Wars: Uncanny connections to Sovereign public debts
In the 20th century, USA went on a rampage of conquering and occupying nations under colonial powers (Spain) in Cuba, Philippines, Puerto Rico… and practically controlled nations under French and English powers until sovereign debts accumulated in WWI and WWII were restituted.
The motto is a fundamental capitalist system that war is the quicker default alternative to resolving matters with weaker nations.
France, England, the Netherlands, Belgium, Portugal, Spain, Italy and Germany conducted their raids around the world to maintain “exclusive” trade facilities in each country they occupied militarily.
The direct connections among exorbitant levels of accumulated public debts and wars have been recognized for centuries, on black and white.
We witnessed that war is one of the preferred defaulting mechanisms on outrageous contracted debts, particularly when the creditor nation is weaker militarily.
In the last two centuries, the world witnessed 320 defaulting decisions by debtor nations.
Is it a coincidence that the last two centuries experience as many wars?
If you compare the two graphs of dates on defaulting and the timing of subsequent wars then, you realize that there are direct interrelations between the two factors.
1. In 1770, (England sovereign debts amounted to 140% of its GNP)
Adam Smith wrote: “At a level of accumulation of national debts, there are no examples that the debts have ever been repaid. Public revenues were always freed to be spent, but never to paying off any debts. Governments prefer to default, occasionally admitting the debts, occasionally pretending to have paid off debts, but always incurring a real debt.”
2. In 1716 France, after the monarch Louis 14, was totally bankrupt:
The Scottish John Law convinced the French Regent to issue paper money covered by gold for easy circulation of money and internal trade. To entice the public into accepting paper money, interests were added, secured by a special perpetual fund called the “General Bank“.
This bank was to be supplied by financial resources converging from the America’s colony of greater Louisiana. The Mississippi Company, (later renamed the “Western India perpetual company“), was collecting indirect taxes for France. Speculation by French nobility transformed the central bank into a machine for printing worthless paper money and the collection from Louisiana stopped to converge to France.
In 1748, Montesquieu in “Of the spirit of laws” wrote:
“There are a few financial specialists disseminating the concept that public debts multiply wealth and increase circulation of money and internal trade. Facts are, the real revenues of the State, generated by the activities of industrious citizens, are transferred to idle classes. The consequences are that we make it more difficult on the industrious citizens to produce profit and worst, extending privileges to the passive classes.”
In 1781, Jacques Necker, France minister of finance, proclaimed that “There can be no peace in Europe unless public debts are reduced to the bare minimum: Public debts are sources for increasing the military capabilities designed for destructive activities; and then more debts are accumulated for the reconstruction phase. A devilish cycle that is anathema to prosperity and security.”
Necker was the first financial official in France to present a transparent statement sheet of all the revenues and expenses for the budget and he encouraged the French monarchy to emulate England by submitting complete budged so that investors and lenders be informed of the financial situation and be encouraged to considering France as a viable country to invest money in.
At the time, England had replaced Holland as the financial center of the world and the central Bank of England was already established.
All indicate that trends in growing sovereign debts in the richer and developed nations are not going to change till 2014.
In that year, it is expected that Japan public debts (mostly internal) will reach 250% of its GNP, Italy 130%, England 100 %, the USA 100% (or $20 trillion, the interest alone representing 400% of its fiscal yearly revenues), France 95%, and Germany 90% of GNP. The US will have to reimburse $850 billion in 2012 and finance one trillion.
The emerging States and most of Latin America countries are experiencing steady drop of their public debts to an average of 40% of GNP by 2014.
My question is: If almost all States have incurred public debts then, who are the creditors?
China economy has saved 2.5 trillion and Brazil and Turkey less than 500 billion. All these savings cannot cover the amount of necessary public debts required by the debtor nations.
Fact is, world finance is functioning on worthless paper money and other financial tools transmitted here and there to give the illusion that the system is functioning.
So far, the IMF and the World Bank are controlled by the G8 who can withdraw at will from these supposed to be international financial institutions. This situation of relying on magical financial illusions cannot persist for long.
A third World War will be created intentionally by superpowers in order to starting from scratch before establishing sustainable financial institutions, rules, and regulations.
If you carry a credit card at an interest rate of over 20% then, you know that the principal could never be paid since the credit limit is 50 times your real annual income in order to finance a purposeful inflationary policy to give the illusion that the ratio of public debts to GNP is being reduced.
Not only 20% interest rate is exorbitant, but adding unpaid monthly installements to the principal is what all ancient customs forbade.
For example, if people of “independent means”, (called rentier) in French, could invest in a productive businesses generating profits of over 20% they would not have lent their money. It is imperative that payments on interest should not last more than 7 years and further monthly payments automatically directed to paying off the principal.
Thomas Jefferson recommended, and then imposed his view when he became President to the new Independent America, that loans should never be contracted out by States for longer than 19 years so that future generations do not have to suffer decisions of the living ones.
As life expectancy is increasing, I suggest that Constitutions should force governments and official institutions to restrict the life of any loan to be 5 years shorter of the lower number of the average life expectancy or the age of retirement of citizens in the creditor nation.
Anyway, if the loan is a private one, the lender should be able to enjoy his placement while alive and not suffer from defaulting decisions.
Note: Reviewing the history of public debts since antiquity, the consequences of incurring huge public debts are the same: Whether the dept is contracted out to a person (the monarch) and the debt is cancelled once the individual is dead, or the public debt is shouldered by a sustainable “immortal” entity such as a State, the weaker creditor will be punished.
The militarily weaker creditor will suffer now or later; it is a matter of delayed punishment for loaning a more powerful debtor whether voluntarily or after coercion.
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