A Monetary Crisis = National Debt Defaults

Here is a partial list of nations that will find it more difficult to roll over their national debt in a monetary crisis.

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Hong Kong

Hungry

Ireland

Israel

Italy

Japan

Norway

Portugal

Singapore

Spain

Sweden

Switzerland

United Kingdom

United States

The Netherlands

In order to create a list like this, we need to review each nation’s current public debt, future debt obligations, and future tax revenue streams:

·         Current public debt is a simply tally of debt obligations already on the books for payment over the next 12 months. Regional and State debt obligations need to be included in this computation because in a monetary crisis, national governments will be pressed to provide aid to defaulted regional and State governments. Think California, New York, and so on.

·         Future debt obligations are those expenses that exceed annual tax revenues. The only recourse for any national government is to either borrow the money or cut the expense. Since expense reduction implies cultural change (or shock), we need to estimate to what extent  strikes and riots will act as a counter to austerity measures. And then we need to estimate if the national government will be able to increase its debt obligations enough to cover any increased expense.

·         Future tax revenues include a projection of current tax policy, the fiscal effect of possible future tax policy (change), and an analysis of future national economic wealth (often counted as Gross Domestic Product). We need to know how a monetary crisis will affect annual economic activity and the concurrent generation of tax revenues.

This is a job for the Cultural Economist. And this is what I did in order to develop the above list of nations. Of course we can only make estimates. How does one, for example, quantify the fiscal impact of a riot? A revolution?

In a monetary crisis, all of these nations have incurred (and can be expected to encounter) more expense than they can easily finance. Although nations such as Austria, Finland, France, Germany and The Netherlands currently have excellent credit ratings, internal cultural change and economic recession will force future credit challenges as they try to finance growing welfare commitments. We will probably muddle through for awhile. But there is a distinct possibility any national monetary crisis will spread like a contagion throughout the world economy.

Let's all hope I'm wrong. What do you think?

TCE