G7 Discusses Deflating Economy

You see, it's like this... First you give them money, then you take it back plus a little more!Every country that is actively capitalistic is going to have debt problems sooner or later. And right now we seem to be entering the time when nations around the world are hitting the fan when it comes to debt. The U.S. is in not so pretty shape, we all know that. Take a country like Iceland and you can see what happens when a banking system tries to do too much too fast. But is the entire EU having problems? Are the issues that started in places like Iceland and Greece spreading?

That’s a big topic of discussion at the current G7 meeting in Canada, and a rising issue with the world’s economies. If countries like Greece, Spain and Portugal don’t do something about their growing debt and failing economies, what will happen? The euro is at its lowest trading with the dollar since last May, and the dollar isn’t doing so hot right now either. Do those countries need to bail out banks and businesses in their countries?

"I don't think they have to concoct a bailout, but they do need to show that they are committed to solving the issues. We need to see a show of unity in backing the steps taken by the various government... Saying nothing about it would be negative,” said Kathleen Stephansen, managing director and chief economist at Aladdin Capital Holdings LLC.

The G7 meeting is of somewhat diminished importance with the rise of the G20. It’s interesting that a smaller group of large economies is giving way to a larger group of large and developing economies, essentially at the same time that

Everyone from Greece to the United States to Japan are having financial trouble- with the U.S. being threatened by Moody’s that their AAA status could drop if they don’t do something about the 10.6% of GDP debt deficit, and Japan is hearing about it from S&P’s over their debt.

But I wouldn’t expect G7 ministers to stop spending money anytime soon. Afterall, it’s what they do, what they were trained to do, and the only way they know to stimulate an economy. Listen to any of the rhetoric coming out of any financial institution these days and they talk about the lack of growth as a problem. Why is that a problem? Because institutions need debt to make money. We are addicted to debt because it is ingrained in the system- that’s just how it works. Not only will we never be out of debt, but we will never want to be out of debt.

"We are all agreed that continued stimulus is necessary, that we have not seen entrenched growth, we have not seen an adequate replacement of public demand with private demand,” said Canadian Finance Minister Jim Flaherty.

Point being:

Countries need to spend money to keep the businesses and citizens turning the wheels of the economy. If you really want to do something about the system without shutting it down, you have to drop those interest rates. Not down to zero, but all those that are at like 25%? That needs to go. All those home loans? Cut, slash, and keep people in their homes. Homeowners WANT to keep their homes. Once they lose it, they’ll never want to own one again. We’ll become a nation of renters, which begins a long road to the feudal system. Oh boy.

Photo Credit: International Monetary Fund (via Flickr under CCL)