The world has been set back on it heals by the erosion of the economies of just about every country in the world. This includes the major nations to drop further and further into debt which requires them to borrow money from more well-off nations and international banks who then charge interest, as do all banks. And like banks they look at the worth of the country and their ability to pay back that which is owed. The more money a country borrows the more interest the bank (country) charges because their ability to pay back has been eroded by their inability to raise the amount required to pay the interest, let alone the money they borrowed.
Usually if a person ends up borrowing like the countries do they would have to go to a loan shark who’s interest rate is more that is legally allowable so the loan shark ends up owning just about everything the person owns. This is normally a result of gambling or just getting over their head in loans that they can’t pay back to the bank’s.
Countries do it another way. They loan the poor countries the money and when they can’t pay right away, they say “Well, you could let us import to your country without us paying any taxes and we will forget the interest for now.” Not forgetting about the primary loan which is still liable to interest the next day, week, month, year which keeps piling up. But the loaning country now has a huge export surplus which many countries see as a good thing. Forgetting that the loaning country is still holding the original loan that the borrowing country cannot pay as they no longer can manufacture the goods as cheaply as the borrower and so they end up deeper and deeper in debt.
This is what has happened to Greece, Spain, Portugal, and Italy in the European market and is happening to a number of other countries in Africa, Asia, South, Central, and Northern Americas.
What this is doing is changing the “playing field”. Most business in any country assume that they only have to compete against other businesses that are paying the same taxes for what they sell. Pay the same taxes for the goods that they import. Pay the same amount of rent without the government giving an advantage to people from other countries.
But this is what is happening in number of countries.
Because this large country at one time was not even on the playing field the governments of the world thought that they could give special “favors” to the “lost” country. This included that the “lost” country would not have to pay import taxes to get their goods into the country (It was assumed that the quality was too poor.) They also said that the people from the “lost” country could come into their country, start a new business with the local governments help. Also they would not have to pay taxes for 5 or so years on their income. Isn’t that nice of our governments?
What do those people do? Just before the 5 years is up they sell the business to their wife or son or daughter or brother or other family member and the business does not have to pay taxes for another 5 years.
In the meantime the big companies in the larger countries, start to create plants in this “lost” country and shift their manufacturing as the laborer’s are paid much less so the cost of the product is cheaper (there). But then the companies have to import the products into their own countries which was getting to be a pain so they came up with a new idea. We will change the way we calculate the worth of the country from only that which is produced within the country to include those manufacturing plants in other countries as part of the worth of their own country. How can they do that and still say that your country is making more money when the only one who makes any money is the “lost” country and the top management of the big companies.
This also allows the Management to be able to claim that the money made overseas is already paying taxes in the “lost” country so they don’t have to pay for any income made in the “lost” country. And now our government has lowered the taxes for these “poor” rich people who if they paid their share like it was when Clinton left office, the US would not have a tax deficit but would have a tax profit, which then could allow the country to lower the taxes for everyone, not just a particular group.
As you may have gathered from what is happening, the “lost” country has bought up over 20% of the worlds debt and in some countries its over the 50%. This means that they can put the squeeze of the countries to allow the special benefits remain in place or they will call in all of the debts.
I wonder what would happen if all the countries decided at the same time to ignore the payments on all their loans. Super Large Banks and the “lost” country would be in serious problems because of the lack of funds.
Something to think about. Don’t you think so?
most-favoured-nation treatment (MFN), also called normal trade relations, guarantee of trading opportunity equal to that accorded to the most-favoured nation; it is essentially a method of establishing equality of trading opportunity among states by making originally bilateral agreements multilateral. As a principle of public international law, it establishes the sovereign equality of states with respect to trading policy. As an instrument of economic policy, it provides a treaty basis for competitive international transactions.
gross domestic product (GDP), total market value of the goods and services produced by a nation’s economy during a specific period of time. It includes all final goods and services—that is, those that are produced by the economic resources in that nation regardless of their ownership and that are not resold in any form. GDP differs from gross national product (GNP), which is includes all final goods and services produced by resources owned by that nation’s residents, whether in the nation or elsewhere. In 1991 the United States substituted GDP for GNP as the main measure of economic output.
gross national product (GNP), total market value of the final goods and services produced by a nation’s economy during a specific period of time (usually a year), computed before allowance is made for the depreciation or consumption of capital used in the process of production. It is distinguished from net national product, which is computed after such an allowance is made. The GNP is nearly identical to gross domestic product (GDP) except that the latter does not include the income accruing to a nation’s residents from investments abroad (minus the income earned in the domestic economy accruing to non-nationals from abroad). Gross national product is a convenient indicator of the level of a nation’s economic activity. In 1991 the United States substituted GDP for GNP as its main measure of economic output.
gross national product – Student Encyclopedia (Ages 11 and up)
National income accounting is a set of measures used to gauge the health of a nation’s economy for a given period. One of these measures is the Gross Domestic Product (GDP). The government uses GDP as the best indicator of economic health because it represents the total market value of all goods and services during a given year. Unlike the better-known Gross National Product (GNP), it omits income from overseas investment.
- It’s China’s turn to wrestle with a pile of bad debt (msnbc.msn.com)
- Loan Shark Debt Campaign Update (payplan.com)
- The Chinese Black Swan (ritholtz.com)
- Loan sharking > Ben Israel (crisskross.wordpress.com)
- Six Questions to Ask Your Lender About a VA Loan (vabenefitblog.com)
- A Guide to Personal Loans (creditloan.com)
- The U.S. Financial System Dies (whitelocust.wordpress.com)
- Loan-sharking Greece (tigerbeatdown.com)
- Deleveraging: You ain’t seen nothing yet (economist.com)
- Taxes and Reducing Debt (turbotax.intuit.com)
- Rating Agency Finds “China Debt Problem Bigger Than Stated” (thepressnet.com)
- Moody’s July 4 Bomb: Rating Agency Finds 10% Of Chinese GDP Is Bad Debt, Claims “China Debt Problem Bigger Than Stated” (lonerangersilver.wordpress.com)