The Euro Crisis (With Subtitles Added)
Despite intense media coverage, the current financial crisis in Europe remains at least somewhat inscrutable to most of us. And with good reason. It resides in a bewildering fog of obscure finance, hazy economics and fuzzy politics.
What follows is an attempt to clear some of the mist and answer the core question posed by the crisis: Can the European Union (EU) survive intact and prosper under its present structure?
But wait. Isn’t this just the kind of fatuous query you’ve already seen in dozens of articles on the subject? At the end of this piece, we’ll return to this question and hopefully, it will make a lot more sense.
The symptoms of the crisis are fairly obvious and present themselves almost daily. Shaky banks in Spain or Italy. Riots in Greece. Nervous huddles of big-time politicians. Tremors in financial markets around the world. But the underlying disease is much more ethereal and abstract. To bring it into practical focus, it’s useful to review a few basic economic concepts, starting with money.
Show me the money.
We all know intuitively what money is. We’ve been around it our entire lives. What’s a bit more obscure is the way that money is produced. The methods of creating money differ around the world, but they all meet the same basic need: Within any given economy, there needs to be an ongoing balance between the money supply and the sum of all the goods and services being produced (the famous GDP, or gross domestic product). Imagine for a moment that the number of dollars floating around in America stopped growing at the end of the Civil War. Since then, the GDP has grown astronomically, so if those Civil War dollars were chasing after the current GDP, each would be fantastically valuable. This imbalance presents all kinds of practical complications: If a single dollar buys an entire automobile, how can a convenience store clerk make change when you buy a can of soda?
In the US, the task of money creation has been assigned to the Federal Reserve Bank. In more global terminology, it would be classified as this country’s Central Bank, the bank of banks, if you will. The Fed’s method of introducing new dollars into the system is somewhat convoluted in practice, but fairly simple in concept. It starts when the US government issues Treasury Bonds, which are basically interest-paying IOUs backed by the idea that this government will endure for many years and always honor its debts when they come due. The US Treasury Bond is a prime example of a so-called sovereign bond, which is backed by whatever national government issued it. There’s no way you’ve read anything about the Euro Crisis without encountering this term repeatedly.
Many parties buy up US Treasury Bonds, such as nations, banks, retirement funds, individuals, investment firms, etc. To create new money, the Federal Reserve purchases these bonds on the open market, and pays for them with new money that it creates out of thin air. Those that have just sold these bonds to the Fed park the newly-created proceeds in commercial banks, and a multiplier effect sets in that fattens up the national money supply.
And so it is that supply of money roughly keeps pace with GDP over time. But what happens if the money supply and the GDP get out of sync? When the money supply gets out in front of the GDP, you have many dollars chasing limited goods and services. Simple logic dictates that the purchasing power of each dollar is reduced: the classic definition of inflation. Conversely, deflation occurs when the money supply shrinks relative to the GDP. As in our Civil War example, the purchasing power of each dollar expands.
BigBucks and LittleBucks
Both inflation and deflation play a role in the Euro Crisis, but before we go there, let’s stay in the US to make a few salient points. We’ll steer clear of real-world politics by reducing the country to just two states: BigBucks and LittleBucks. The state of BigBucks is a wondrous place. It routinely creates the latest generation of computer chips. It’s already installed a diverse infrastructure for alternative energy. Its universities are on the verge of perfecting a cure for cancer. In a word, BigBucks has a prodigious local GDP. On the other hand, LittleBucks sits on scrubland that supports a gypsum mine, a couple of asbestos mills, and a string of hamburger stands along a pock-marked highway. In other words, a very anemic local GDP.
However, both states have one thing in common: the US dollar, as regulated by the Federal Reserve. Whether you buy a new smartphone in BigBucks, or some French fries in LittleBucks, you pay with same the currency. But in truth, it’s the swelling GDP of BigBucks that prompts the Fed to create new money to keep pace with the overall national growth. In reality, the state of LittleBucks is just along for the ride.
So how do the people in LittleBucks cope with a currency that’s actually powered by their much richer neighbors? They lead scaled-down lives in terms of dollars. They earn less than BigBucks people and spend less because they produce less. The same goes for their state and local governments. They collect less tax money and spend less.
BigBucks lives big. LittleBucks lives little. As long as this balance reflects the size of their respective GDPs, the monetary situation remains stable. The Fed can pump in more dollars to accommodate the overall national growth without causing much inflation. Remember that inflation only fires up when the supply of new dollars exceeds the growth in the GDP.
(Caution: When you think BigBucks, don’t think California, with its ongoing fiscal nightmare for state and local governments. In that particular state, the private sector lived large indeed and paid large taxes for the longest time. Unfortunately, state and local governments assumed this revenue flow would roll on indefinitely and gradually elevated their spending to levels unsustainable in a prolonged downturn.)
So much for money; now let’s talk about people.
Most likely, those in LittleBucks are going to look across the border at their big-time neighbors and want in on the action. Flat-screen TVs, facelifts, etc. And since they run their own show, they can give themselves hefty pay raises—far beyond their real productivity—to live large. What’s more, they can borrow heavily to support their newly acquired habits. Their governments can do likewise, by borrowing to support the wonderful social programs they see over in BigBucks.
All done in dollars. Dollars that are now out of whack with real GDP. A classic recipe for inflation.
Enter The Euro
So what’s all this have to do for the Eurozone? Let’s move across the pond and see. We should start by setting the geopolitical backdrop. The 27-member European Union (EU) dates back to 1993, and lets you do things like travel from Sicily all the way to Helsinki without showing a passport. A 17-member subset of the EU decided in 1999 to share a common currency, the euro, and became known as the Eurozone. The most significant difference between the EU and the Eurozone is Britain, which is a member of the EU and a big economic player, but not a member of the Eurozone. Although Britain retains the pound as its currency, its banking system is heavily intertwined with the rest of Europe, giving it a vital interest in the affairs within the zone.
The Eurozone, like all such systems, has to have a mechanism for matching the money supply (euros) to the growth in its collective GDP. Enter the European Central Bank, or ECB, a major player in the all those articles you’ve read on the crisis. It has one overriding mandate: to control inflation and thus maintain “price stability”—another of those terms that populate the media coverage.
To pump money into the Eurozone, the ECB uses a different process than the Federal Reserve in the US. It connects to a network of member banks throughout the zone, and makes very short-term loans, which are continuously rolled over and replaced with new loans. Think of the rolling balance on a credit that you pay off every month and you’ve got the idea. In turn, the member banks use these loans to pump money into the local economy. The bigger the loans, the more money flows into the system.
In the process, the ECB uses a couple of different financial valves to control the flow of euros. One is the interest rate charged on the loans. The lower it goes, the more attractive these loans are to the member banks and the more money they’re likely to borrow. The other is collateral. The member banks have to demonstrate that they have the assets to back the loans. Now, in almost all banks, assets take the form of interest-bearing loans to their customers, which are backed by things like real estate, business net worth, or the institutional strength of the local government. All of which are highly dependent on the local GDP.
Here we approach the heart of the problem. Because the Eurozone is a not nation, but a loose union with as many GDPs as it has members. Despite lip service to the contrary, each country largely charts its own economic course, which results in a distinctly local GDP. The Eurozone and the ECB don’t tell each country how to set wages and loans and national budgets. They only try to control inflation via the money supply.
Now if the Eurozone system functioned as originally planned, this diversity of GDPs wouldn’t be a problem because of the ECB’s collateral requirement. Banks in countries that held meager assets because of anemic local GDPs would only be eligible for a modest flow of new euros. The balance between money supply and GDP would be stable, and inflation kept in check.
But it hasn’t worked out that way because banks throughout the EU hold a significant amount of their assets/collateral in sovereign bonds from various EU nations. And the true worth of many of these bonds is now very much in doubt.
BigEuro and LittleEuro
To see why, let’s turn the states of BigBucks and LittleBucks into the countries of BigEuro and LittleEuro. BigEuro has high productivity and an impressive output of goods and services, which has many positive consequences. For one thing, its rapidly expanding GDP can absorb a generous supply of new euros without setting off inflation.
For another, it produces a steady and growing stream of tax revenue for the national government, which can confidently issue new sovereign bonds. Banks and investors from all over routinely snap up these bonds and happily collect the interest they generate.
LittleEuro is a decidedly different case. It suffers from low productivity and its private sector is languishing. And like LittleBucks, it has gradually slipped into a state of economic self-deception. It keeps its wages (paid in Euros) on parity with BigEuro. Its citizenry borrows heavily to live the good life. More critically, its government also borrows heavily to support the kind of social services enjoyed by BigEuro—but without the tax revenues to match. Now if Little Euro had its own currency, it would probably try to simply print money to pay its debts, even though that would trigger inflation. But it doesn’t. It uses the Euro and must comply with the money supply from ECB.
For quite some time, the sovereign bond market tolerated the true disparity between BigEuro and LittleEuro, and expected that all sovereign bonds within the union were highly unlikely to fail. No more. LittleEuro has run up a string of budget deficits that can no longer be ignored. Words such as “default”and “restructure” and “haircut” are now regularly used in reporting about the Eurozone.
From here on, we’ll us BigEuro to denote the more prosperous countries in the Eurozone, like Germany and France. LittleEuro will refer to the less prosperous members, like Italy, Spain, Ireland and a few others. At the bottom of the pile is Greece, which is really in a category by itself.
A Butterfly Over Athens
The growing weakness of these troubled bonds ripples through the system in several ways. At the macro level, it affects the money supply distributed by the ECB. As previously stated, banks get their volume of new money based on collateral, which in turn is partially based on sovereign bonds. Compromised collateral means a restricted flow of new money, which tends to suppress economic activity. And at a more immediate level, it weakens banks throughout the Eurozone, even those in the more prosperous countries, which have large holdings of sovereign bonds from the poorer countries. (This web of debt ownership is quite complex and extends beyond the EU to the US and Japan as well. German banks own debt from Italy, and Italian banks own debt from France, and so on.) Finally, the growing risk associated with this debt drives up the interest rates for countries issuing new sovereign bonds. As always, increased risk demands increased return.
The Big Fear is that these ripple effects will cripple the Eurozone’s banks. Cash will cease to flow. The economy will grind to a halt. Hence you will hear terms like “deteriorating balance sheets”, “credit crunch” and “declining liquidity”. But what do they really mean, and how do they apply to the situation at hand?
An Inside Job
To understand, it helps to take a basic look at the way banks operate under the so-called “fractional reserve” system. Essentially, banks hold money in two forms: Cash and loans. The cash earns the bank little or no money, while the loans generate income through interest payments. So it’s in the bank’s interest to minimize its cash and maximize its loans. There are very specific rules about how far this can go, and they define the “fraction” that must be kept it cash. When you look at a bank’s balance sheet, you’ll see cash in the liabilities column, because it has to be available for withdrawal at any time. Loans sit on the asset side, because they are cash that’s been converted into income-generating instruments backed by real-world collateral (in theory, anyway). The rules dictate that if the bank’s assets are somehow diluted, they must hold onto more cash to compensate for this decline. So if loans in the form of sovereign bonds start to go bad, the bank must respond by hoarding more cash—and not loaning it out keep the economy moving: the “deteriorating balance sheet.”
Now, a little closer look at the sovereign bonds themselves. A common mistake is to think of this kind debt instrument like you would a personal loan, where you eventually pay it all off and that’s the end of it. In reality, sovereign bonds are continually rolled over. When the principal becomes due, you issue a new bond to pay it off and start all over again. So if you’re the government that issued the bond, you don’t worry too much about the principal, which is hard at work somewhere in your national budget. But what you do worry about are the interest payments, which are a regular cash outlay, just like the salaries of government workers or the purchase of new military gear.
So what happens if a government becomes too cash-strapped to make the interest payments on its sovereign debt? Here’s where the terms “default” and “restructuring” enter the lexicon of financial doom. In the most extreme default scenario, the government announces to the banks that it can no longer make the interest payments—not now, not ever. And the underlying principal? Gone for good. You can’t repossess that Parthenon to satisfy Greek debt. This means that the banks must remove the bond or bonds in question from their asset column. And as we’ve seen, they have to hoard more cash to compensate. At the same time, financial markets panic, and rush to sell off the sovereign bonds of any country with less than impeccable credit. You’ll sometimes hear this scenario referred to as an “involuntary” default, and its ripple effect could be downright catastrophic. Frozen banks. Plummeting markets.
In a restructuring scenario, an attempt is made to avoid a total default and come up with a compromise, which can take many forms. Generally, the objective is to reduce the interest payments to some manageable level. One way of doing this is declare that underlying principal is now worth something less than its original value, and reduce the interest payments accordingly. For instance, a million-euro bond with an annual interest payment of 50 thousand euros would become a half-million-euro bond with interest payments of 25 thousand euros. In this case, the investors just took a 50% “haircut” in an effort to avoid a complete disaster. Restructuring is considered a “voluntary” default because some kind of formal deal is reached between borrowers and investors.
Risky Business
Even the possibility that one of these default scenarios might come to fruition increases the perceived risk associated with sovereign bonds in general. So it’s no surprise that the interest rates on new sovereign bond issues are already on the rise—even for relatively stable European countries. This means governments must cope with higher debt payments at a time when they’re already struggling to somehow balance their national budgets without descending into political chaos.
Put all this together and an ominous chain of cause and effect surfaces in each ailing country. Banks become skittish and cash flow slows, which negatively impacts business activity. Consequently, the work force shrinks and critical investments in productivity go out the window. Lower employment translates to falling tax revenues, which means government budgets shrink which means less money make debt payments—either that or start hacking away the social platform at a time when people need it the most.
So what’s to be done? Here we start to encounter terms like “bailout”, and “guarantees” and “Eurobonds” and “austerity programs.” They all tend to focus on three major courses of action. One is to stabilize the national budgets of ailing Eurozone members. Another is to relieve the pressure on banks throughout the Eurozone by purchasing risky bonds to get them off their balances sheets. Another is to circumvent the normal sovereign bond scheme and lend directly to distressed nations.
As you may have read, several nations in the zone have launched austerity programs in an effort to get their finances under control. These include Spain and Italy, among others. Cuts in government spending have many effects, but the critical one right now is to free up enough cash to make interest payments and move away from the possibility of a default. The overall idea is to convince the marketplace and the Eurozone that the country is moving toward a less risk-prone position, which should ultimately lower the cost of financing their debt. Of course, austerity measures can carry some very negative political consequences, especially in countries that have constructed generous social platforms that must be at least partially dismantled.
The other major course of action is to purchase the bonds from the banks to get them off their books and improve liquidity, that is, the flow of cash out into the economy. In fact, the ECB has already done this several times. It now owns 60 billion euros worth of Greek debt, and purchased billions more of Italian and Spanish bonds this past summer.
Another alternative is to leverage the good credit of Eurozone as a whole to provide financing for its less fortunate members, who face high interest rates because of their budgetary problems. The European Financial Stability Facility (EFSF) was created for this purpose by the 17 Eurozone nations. It works like this: The EFSF issues bonds of its own, called “bills.” These bills are sold to investors worldwide, who are attracted by the EFSF’s superior credit rating. The agency then uses the proceeds to make loans to ailing countries at relatively low interest rates. As of this writing, the EFSF has loaned about 18 billion euros to Ireland and Portugal.
Looking ahead, the EFSF is preauthorized to place up to 440 billion euros in loans, which are backed by 726 billion euros in loan guarantees from 14 of the 27 EU member states. This represents a 165% “over-guarantee” on the 440 billion to keep investors from getting nervous. It’s important to note that the guarantees are divvied up according to how much each of the 14 members has invested in the ECB. This means that Germany is on the hook for 29% and France for 22%. In other words, BigEuro represents at least half of the guarantee package. (It’s interesting to note that three LittleEuro players—Greece, Ireland and Portugal—were originally part of the EFSF, but had to drop out for pretty obvious reasons.)
Yet another way to attack the debt problem is to focus directly on the liquidity of the Eurozone banks, and thus improve the bond situation indirectly. Late last year, the ECB stepped in and did precisely this by doling out 489 billion euros in low-cost loans to banks throughout the region. The hope is that the banks will make this money available to businesses at reasonable rates and stimulate the economy, but for now, they seem to be hanging onto it, and ironically, many of them are putting it into the safest place they know: right back into the ECB. Their motivation for doing so is less than noble. Keep in mind that a bank is a business, and as such, it has debt of its own to consider. Just like sovereign nations, banks tend to roll over this debt, and replace old loans with new ones. So if they can pay off the old high-interest debt and replace it with low-interest money from the ECB, they come out ahead.
Finally, we come to the most controversial solution of all. The ECB could simply print money to purchase the bonds or lubricate the banks. As used here, “print money” is largely a figure of speech, and doesn’t necessarily mean bank notes rolling off printing presses. Instead, it refers to the ECB buying bonds or making loans with euros that it creates out of thin air, much like what the Federal Reserve does to expand the US money supply. But if you’ll recall, we also made clear that there must be a balance between the money supply and the region’s GDP as a whole, which is currently floundering. More money without more productivity generates inflation—the very thing the ECB is dedicated to keeping in check. And Germany, with the region’s largest economy, is particularly sensitive about inflation. It still remembers the runaway inflation during the Weimar Republic in the 1920s and the resulting economic chaos, which paved the way for the Nazis.
Love Thy Neighbor
Now we’re ready to return to the original question: Can the Eurozone survive intact and prosper under its present structure? That structure is built on 17 nations sharing a common currency even though the relative health of their economies has become widely divergent. Those with stagnant or declining GDPs cause inflationary pressure on the euro, while those with growing GDPs do not. So who should take the hit? The sovereign bond market has become the center stage for this monetary drama. Nations that have been living a fiscal lie and borrowing to keep up with their rich neighbors have now been exposed and the game is up.
For the Eurozone to continue there must be some form of reconciliation between the rich and poor without abandoning the currency that binds them. All the efforts so far are really interim measures, like loaning money to someone who is seriously ill, but not treating the underlying disease so they can eventually pay you back. And for the Eurozone, that illness is defined by differences in productivity.
Behind every country’s GDP is the combination of labor and capital that produces it. Productivity is simply the efficiency of this combination. Theoretically, you could have a few giant robots crank out the entire national GDP. If the cost of these robots and their maintenance was low enough, you could achieve incredible efficiency and everyone could go on permanent vacation with full benefits. Not so in reality. People need to work. Businesses need to buy new machines. And efficiency of these people and machines is what should ultimately determine wages and return on capital. Keepers of statistics in the EU actually track this kind of thing, and the current numbers for labor productivity show Germany at 105 with Greece at 95 and Portugal at 76. But the wages for this labor are all paid in euros, which don’t reflect this obvious difference in productivity. To illustrate, let’s define a job that workers in all three countries might have in common: A maker of Widget #15. All three get the same salary in euros for making these widgets, but the German worker cranks out 105, while the Greek turns out 95 and Portuguese 76. Obviously, something has to give.
So there you have it. Beneath all the Euro buzz is this stubborn relationship between inflation, GDP and productivity. In any given nation, lower productivity relative to the world at large weakens its GDP, which makes it more prone to inflation. However the common currency in the Eurozone largely masked this inflationary effect. But it had to come out somewhere, and it did so through sovereign bonds. LittleEuro took out national loans in euros, just as BigEuro did. But LittleEuro didn’t deserve all those euros in the first place, because its economies were less productive.
About a year ago, the economist Paul Krugman wrote a brief, but fascinating piece in the New York Times about the challenge of trying to synchronize and stabilize the inflation rates of BigEuro and LittleEuro. His presentation was somewhat abstract and academic, but also penetrating and insightful, which is what you’d expect from a PhD economist. Rather than reiterate his line of reasoning depth, let’s examine it in a simplified scenario. Suppose that BigEuro accounts for 75% of the Eurozone economy and LittleEuro for 25%. Also, assume that inflation in LittleEuro is 20% higher than BigEuro. This means that while a worker in LittleEuro earns 120 euros to buy a bag of groceries, a worker in BigEuro earns 100 euros to buy the same bag. Now what if you wanted them paying the same amount for that bag at the end of 5 years? One way would be for worker in BigEuro to start earning an extra 4 euros every year. In other words, wages in BigEuro would inflate at roughly 4% per year. And since BigEuro comprises 75% of the total Eurozone economy, this implies that overall inflation would be 3%.
Now what if the workers in BigEuro weren’t happy with this scenario? Suppose they wanted the workers in LittleEuro to share the pain of inflation and meet them halfway? In other words, at the end of five years, both would earn 110 euros to buy the bag: Ten euros less for LittleEuro workers and ten more for BigEuro workers. If you do the numbers, it means that you would see 2% annual inflation in BigEuro and 2% annual deflation in LittleEuro. This holds the overall Eurozone inflation to 1% per year.
This scenario sounds great on paper. The inflationary burden is shared. The zone’s overall inflation is minimized. Unfortunately, history has shown that the deflationary side of the equation can be extraordinarily damaging. To set off deflation, you constrict the national money supply, which means fewer euros chasing the same level of goods and services. Within the target country, each euro is now worth more, and wages can come down accordingly with no loss in your lifestyle—or so it would seem. On supplier side, things look quite different. If 5 euros now buys what used to be 10 euros worth of gas, the supplier has to cut prices in half to compensate. Revenues plummet and layoffs are all but inevitable. Thus the spiral begins and unemployment surges, as it did in the Great Depression in the US. In a time of deflation, sovereign debt also takes a hit. Lower wages mean less tax revenue to service the interest on bonds. If a country’s economy is contracting relative to the euro at large, its debt burden is on the rise.
Now consider the political dimension. In essence, the taxpayers of BigEuro are in the process of guaranteeing the financial stability of their floundering neighbors. It’s as if one of your flakey relatives was living on credit cards and you had to co-sign on a loan to pay them all off—with no real control over that relative’s spending habits going forward. Understandably, there is a certain amount of resentment in BigEuro over this situation. But if you swing the financial camera around and view it from LittleEuro’s perspective, there’s also cause for umbrage. Citizens see national debt payments flying out of the country and into rich banks while those around them suffer under crumbling social programs. It just doesn’t seem right. But then again, what is? Such is the nature politics.
Run For The Exits
So what if LittleEuro decides enough is enough and decides to leave the European Union? What then? The best model for this scenario is, of course, Greece, which continually teeters on the edge a complete financial and political meltdown. So let’s walk down the path of a national Armageddon on the Aegean. It starts with Greece announcing that it is exiting the EU and abandoning the euro as its national currency. From now on, the drachma, its original currency, will be the coin of the realm. This declaration triggers a nearly total default on its sovereign debt. No bank wants to accept drachmas as interest payments. In effect, they aren’t worth anything anywhere except in Greece, and even there, no one knows what they will ultimately be worth.
On the sunny side of the national street, Greece has instantly balanced its budget since it doesn’t have that pesky national debt to worry about. And it’s now in control of its monetary policy: It can print all the money it wants to. Funds can flow out of the Central Bank of Greece and into local banks, which plow the money into new business activity and jobs, and new jobs mean new taxes and a healthy national budget. Right? Not for long. Because ultimately, we’re back to where we started on this journey: There has to be a balanced relationship between the currency and the GDP, and the GDP really hasn’t changed in spite of all this new money. Inflation quickly sets in and takes its toll. One estimate suggests that if you started off with each drachma equal to one euro, the drachma would rapidly lose 60 per cent of its value. Prices would soar to compensate. If one drachma originally bought a banana, it would now take 2.5 drachmas. Large numbers of Greeks have already quietly bet on this scary scenario. In the past year, they have dipped into their bank accounts and sent nearly 40 billion euros out of the country.
Beneath all this financial and political posturing, the Greeks have a very strong incentive to somehow make a deal and stay within the EU—even if they have to drastically reform their national budget to do so, and suffer the resulting social pain. But to make it happen, BigEuro will have to extend them enough funding so they can buy some time to turn the corner and improve their productivity: The so-called “rescue packages”.
On the other side of the coin, BigEuro has some strong incentives of its own that go beyond just the integrity of sovereign bonds. The citizens and businesses of LittleEuro borrowed heavily to buy stuff during the time that their economies were undergoing what’s turned out to be an artificial expansion. Fancy cars, sophisticated electronics and so on. And guess who they borrowed from? BigEuro, of course. And as with the sovereign bonds, a massive wave of private defaults would be calamitous.
So how much money does Greece and rest of LittleEuro need to turn the corner? And how much time? And what if they prove incapable of turning the corner at all? Right now, no one seems to have realistic answers to these urgent questions, which are critical to the survival of the European Union in its present form. Take as a whole, the combined public and private debt of LittleEuro is over 6.4 trillion euros, which gives some rough measure of the problem. At 5% per year, this debt level demands annual interest payments approaching 500 billion euros.
Perhaps more importantly, it demands a critical look at how the entire global economy is currently structured. How can countries maintain stable trading relationships when their economies are dramatically misaligned? Relatively prosperous countries naturally seek to expand their export markets to less advantaged ones; but ultimately, these importing nations to need to have the economic strength to pay for what they get. Otherwise, the system eventually collapses in a heap of debt and we experience a contraction of almost unimaginable proportion.
Of course in a world where all economies have a more or less even footing, competition intensifies, and people have to become increasing imaginative and industrious about what they make and how they make it.
But what’s wrong with that?
