A Method for Solving Debt Crises in Developed Nations
by 1221 mak
Please take this information and pass it on to people who are searching for a method to solve the debt crisis.
Repetition of current economic activities can only lead to developed nations experiencing a debt crisis. There are no doubt various causes behind it, and in the end those countries will plunge into a debt crisis. In addition, strict monetary policies will keep a country very close to defaulting on its debt or cause it to default.
If countries experience a long period of sluggish economic activity similar to that experienced by Japan, many of them would, in extreme cases, experience civil war or begin exploring the possibilities for separation/independence. Furthermore, they are quite vulnerable to invasions and other acts of aggression by other countries.
If we look at these conditions, we see that severe financial situations are brought about by debt crises. Governments with massive debt are unable to make public investments or undertake unemployment measures due to debt payments, and have no more control over their currency. A government falling into a debt crisis indicates that the country is at its debt limit and that tax revenue and other forms of government income cannot cover its debt.
In other words, it has been extremely difficult to make it through debt crises using conventional solution methods. However, I know that it is possible to solve such problems using a ground-breaking, never-before-seen method. With this method, a central bank injects capital into government. This uncomplicated measure can be readily used while paying attention to several indicators.
2. Debt Crisis Solution Strategy
The debt crisis currently being experienced in Europe can be solved by having the European Central Bank directly inject capital into all EU countries. This method can also be used for other developed countries facing debt problems, such as the US and Japan. For many emerging nations, however, it is not an option.
In order to implement this solution strategy, the European Central Bank should create deposits without collateral and inject these deposits into the government deposits of each EU nation. Doing so will have the following effects on each government:
・Threat of default will be eliminated and debt repayment will be stabilized
・Fiscal balance will be easily improved, making financial rehabilitation possible
・The nation’s currency will become diluted as a result of injecting capital into the government. This can also be called the negative interest rate effect. This makes it possible to drive down the policy interest rate to a more realistic level, eliminating the liquidity trap.
・Possible elimination of the necessity for import taxes since the currency can more accurately reflect economic conditions
・Straightforward boosting of demand from abroad due to the weakening of the currency, leading to a trade balance surplus
・Tax reductions and further public investment possible in accordance with the scale of capital injection
・A weaker currency and improved fiscal balance will create a trade balance surplus and fiscal balance surplus, making it possible to eliminate the twin budget and trade deficits.
・Facilitate the expansion of domestic demand through increased public investment
・Create a positive multiplier effect by expanding public works and stimulating job creation.
・Dead capital will also become a target for dilution. This will enable proactive investment as well as the long-term nullification of dead capital.
・These measures will result in losses for the rich and profits for the poor. As a result, countries with a large Gini coefficient (reflecting inequality) will witness a shrinking in the gap between the rich and the poor.
The following items are demerits of implementing the solution strategy:
・Inflation results based on how much capital was injected into the government
・The values of subject currency denominated assets will be diluted accordingly
・Redenomination of currency will be required once over an ultralong-term period
・If the solution strategy is implemented simultaneously by developed nations, it may see the world economy divide into blocks.
1. The central bank of a nation injects capital into its national government. At such time, the central bank will create deposits without collateral and inject the capital from these deposits into the government.
2. The government will repay bonds, increase public investment, or reduce taxes, etc.
3. Close attention will be given to changing economic indicators which I will discuss shortly.
The process indicated above is capable of simultaneously solving the problems currently witnessed in developed nations, such as debt crises, the excessive reduction of public works, the collapse of social insurance systems, high unemployment rates, trade deficits, fiscal deficits, large wealth disparities, and liquidity traps.
For example, if we aim for 3% growth in GDP, capital injection of the scope shown below is necessary.
2013 GDP: EUR 13,068,601,000,000
GDP growth: 0.1%
In this case, we need to increase GDP growth by 2.9%.
Yearly capital injection: EUR 378,989,000,000
Capital injection of the amount stated above is possible.
3. Targeted Economic Indicators
Ongoing capital injection is undertaken with the following economic indicators values serving as a guide.
Although it is not necessary to achieve all of the targets in the end, it is important to make comprehensive judgments.
→Total interest income: 0
→Deposits-to-debt ratio: 1.00
→Birth rate: 2.08%
→Standard population density at the world average of 50 people/km2 (other standards are currently ill-defined)
→Fiscal balance: 0
→Current account balance: 0
→Necessary to study the trends of principal countries, as interrelationship is also important
→Average yearly GDP growth rate: 3% to 7% (it is favorable for developed nations to have an average yearly GDP growth rate which is on the low side)
→Average yearly CPI: 3%
In the end, once many of the targets have been reached, it is desirable to stop capital injection. It is necessary to reduce the scope of capital injection while observing each economic indicator.
I would appreciate it if you would consider the proposed method. If you have any questions, please contact me using the information below. Thank you very much for your time.