Debt Issue

 Debt Issue

(Roy Dianon)

Business today is not what it used to be. After the worst global financial crisis, which peaked in 2009, industrialized nations like the United States and those in Europe have posted only moderate growths; some of them cannot even continue surviving economically, according to some economic analysts. The United States is battling with its growing debt of $14.3 trillion and argument increase in intensity whether to raise the debt ceiling. The entire world is watching, whether creating more debt will solve the debt problem not only in the United States but also to some members of the European Union which are also trying to cope with their debt misery or misfortune, particularly the country of Greece.

Business control over a commercial activity is no longer as centralized as it once was. The rising role of emerging markets, like China and South Korea plus its variety of potential emerging economic growth, which have relied heavily on exports, today they are considering to put more weight on domestic consumption. In many big emerging economies, the growing role of domestic demand is already noticeable and procuring of services and products locally is likely to have a global effect by now.

The BRIICS (Brazil, Russia, India, Indonesia, China, and South Korea) will lead the emerging world, and is expected to account for more than half of the global growth. The idea of looking ahead to something in the future is focused on China increasing economic dominance that is a favorable potential in leading to international role for its currency. By this time, the Chinese are aggressively moving to internationalize their currency through the development of offshore renminbi markets and by encouraging its use in trade.

That even a continuous intense pressure coming from the U.S. government, China has remained committed to keeping the Yuan trading in a stable range against the dollar. China prefers a weak currency because it makes Chinese goods cheaper for American consumers and other countries of the world. With weak Chinese currency in the world trading, it makes other countries-made goods expensive for Chinese consumers. In effect, it inspires and develops great confidence to Chinese entrepreneurs to support the drive for more export and encourage the domestically produced goods to be patronized by the Chinese general public.

With this particular move made by both of the Chinese people and its government, a favorable concrete outcome over the next decade or so, will bring more progress into China’s global market share including its rapid globalization of its corporations and banks, and has a good chance to a more important role for its currency, “the

renminbi.” Because, whoever currency will be accepted by the world, will largely benefit from the business and economic development. But before the power to dominate of currency will happen, a crucial period of economic, military and social problem will come first.  

After World War II, especially with the creation of the International Monetary Fund and World Bank which assured the replacement of the pound with the dollar as the world’s reserve currency, the U.S. benefited much in using dollar as the world’s reserve currency. With almost two-thirds of the world’s currency reserves in dollars, US Dollar's still position as the world top reserve currency. The dominion of this dollar currency was indebted to Henry Kissinger move in 1974, in organizing the US-Saudi Arabian Joint Commission on Economic Cooperation, by devising an  oil trading  scheme on condition that they will sell their oil with US dollar as the only currency that will be accepted. Because of this market strategy, everyone needs dollars to do business in the world’s petroleum markets. Since petroleum is a worldwide pressing need, dollars rapidly accumulated in foreign banks.

Unfortunately the US dollar suffered from inflation (its value relative to the goods it could purchase decreased), while other currencies of the world especially countries with emerging markets become more stable than US dollar. Since the dollar was not worth as much as it had been, in 1971, one ounce of gold become $70 in worth. As a result, the U.S. abandons the gold standard completely. Meaning to say, the currency being coined and imprinted by that government has no equivalent gold reserve held in a vault. After which, a world’s currency agreement was formed, where exchange rate between nations will follow with a floating exchange rates system, and each currency would be valued according to world demand. A system we are currently adopting where the dollar no longer defined or measured in terms of gold standard.

Since we need exchange rates because one nation's currency is not always accepted in another, how then the world based their exchange rate after abandoning the gold standard? The most popular systems used to determine a currency's exchange rate is called the floating currency. Floating currency is a market driven system and is being governed by the law of supply and demand principle which is determined by foreign investment, import/export ratios, inflation, and a host of other economic factors. In simple words, one particular currency (Peso, Philippines) is valued by import/export ratios, foreign investment which is sometimes affected by speculation, inflation and other economic factors. That is why, we see in the news paper, and on TV exposure that the Foreign Exchange Market, or Forex, is the most productive financial market in the world. This is the world of economic we have today.

Even with this new approach on exchange rate mechanism, the world crisis and recession in most countries remain impossible to avoid; a new global concern is emerging. Dollar fluctuation in world currency becomes the center of argument. They are saying that the days of U.S. global economic dominance are numbered. This is because, American economy has a huge trade deficit plus tied up with external debt equivalent to almost 99.95% of their Gross Domestic Product. Since the US is indebted to some countries of the world, amounting not less than US$14 trillion, the big question arises, “what will happen if coincidentally all America's creditors decided to collect at least a portion or the full amount of that debt? What if US cannot pay for it, how will the world react?

There are some serious problems to which there are no easy answers. How do we get out of the debt issue? Some said, in order to solve the debt problem, we have to increase or multiply our existing debt to pay for the current debt in order to solve the debt problem. There is sense in this reasoning but mathematically it will end up, still tied up with debt. Do you think these countries who are now drowning in extremely high levels of debt have enough resources to pay or a way out of the debt that just seems to grow bigger each day, is there a way out?

Historically proves in the 17th century, the world debt increased by 47%. By the end of the 18th century the world debt had increased by 466%, and by the end of the 19th century the world debt, public and private, had increased by 12,000% not to mention the 20th century current debt. No nation on earth is entirely self-sufficient, each country is dependent on another for survival even war and disputes will possibly happen between them. Hence, stopping the lending and borrowing caused a crisis by a sudden drop in the availability of liquidity in the financial markets, pushing to collapse a global trade flows and downsizing the working force by retrenchment and lay-off and eventually causing interest rates to rise and financial markets to sink, sending shockwaves around the world.

           

As with most things in life, debt is important to life so long it is used carefully and wisely. It is God’s desire that all people enjoy prosperity, happiness and security as what 3 John 1:2 Beloved, I wish above all things that thou may prosper and be in health, even as thy soul prospered. But to enjoy God’s loving offer of prosperity, a choice must be made. Just as God reveal this choice to ancient Israel in Deuteronomy 30:19  I call heaven and earth to record this day against you, that I have set before you life and death, blessing and cursing: therefore choose life, that both thou and thy seed may live. The choice therefore to prosper in life is our decision.  Life is a series of choices, with each decision having an impact on future decision.

Since many of us were not able to properly manage the God given resources to prosper materially and let us be reminded that there is no problem with the blessing coming from God but rather it is the problem of disobedience that make this blessing unrealized. Therefore, more than our material net worth where we are so very conscious today, God is so interested while  still were being formed in our mother’s womb. God had the good measure what is best for our life. In a continuing process while we are still alive, God give His special time, molding us to become acceptable in spite of our human weaknesses. But instead we abuse and take for granted God’s special time, by making our physical body as a receiver of the many undeserving deeds the world has to offer, thereby polluting both our body and soul in the eyes of God. Remember, theday of death and judgment should come upon us unawares, when we do not expect it, and are notprepared for it. (Luke 21:34) God Bless.