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Jubilee Statements

Monitoring the impacts of government and corporate behaviour in communities overseas.

"First world debt crisis": ignoring lessons of history

Release Date: 20-Jun-2011

The global financial crisis or the “credit crunch” as it has been labelled has sent shock waves around the world. Plunging share prices and record market lows have many analysts convinced that a US and European recession is virtually assured.

The chaos in financial markets has been explained as a lack of credit available to banks on the international markets. Inject liquidity, restore lenders’ confidence to start lending again, and everything will come right. Hence the $700 billion US bail out.

But is this really about lack of credit, or about massive over-accumulation of debt? Driven by greed, many of the largest and oldest investment banks in the world embarked on irresponsible and reckless lending practices in the sub-prime mortgage market, giving loans to people with no capacity to repay their debt. Using a complicated web of financial instruments, these debts were repackaged and resold onto brokers and investors around the world.

The crisis of debt in the North bears frightening resemblance to the debt crisis that poor countries have faced since the early 1980s. Today developing countries’ debt stocks stands at a staggering US$2.9 trillion and every day the poorest countries pay the rich world almost $100 million in debt repayments.

But compare and contrast how developing countries are treated by rich governments to how international banks are being treated. The former are told to get their house in order before they receive financial support. Meanwhile they are left paying. The latter are being bailed out with incomprehensible sums. And where are the conditionalities to these bail outs?

The current crisis provides an opportunity for these issues to come centre stage.