Jay Kuten: Debt, the truth and consequences

Ecclesiastes, and in its modern iteration by The Byrds, tells us there's a time for everything. The question it leaves unanswered is this: what time is it? Is it time for fear or time for hope?

It's easy to be fearful if you've been watching the 500 point gyrations in the US stock market. After all, when that market sneezes, New Zealand's catches cold. And watching those nights of rioting across England was truly unsettling.

US markets were probably responding to the downgrade of the US debt by Standard & Poor's, which explained its action on the basis of the political dysfunction of Congress in negotiating the recent rise of the debt ceiling.

As political compromise is drowned by ideology in the US, where Republicans seek to defray the debt without raising revenue, that refusal perpetuates income inequality, a harbinger of social unrest.

In England, income inequality has long been a fact of life. The riots probably take origin from the belt-tightening enacted by the Conservative Government to deal with deficits. That is the view presented in an editorial by Richard Sennett and Saskia Sassen (NYTimes August 10). It points to the underside of British reserve and politeness - the soccer hooliganism and weekend brawling fuelled by alcohol.

England has 20 per cent youth unemployment but that was true even in good economic times. Then, social programmes in place and unemployed youth had things to occupy them without recourse to criminal action on the latest scale. The difference is "the cuts" of the austerity programme by the Cameron Government. With the closure of playgrounds and clinics and no programmes for jobs creation that might provide hope for the dignity of meaningful work, the young are burdened with "freedom". It's the freedom that Kris Kristofferson called "just another word for nothin' left to lose".

Sennett and Sassen see an object lesson for the US in England's turmoil. The two countries have similar situations of income inequality and the mood in Congress is to try to resolve the debt problems by reducing the government's social safety net, especially for the poor and unemployed. At the moment, the mayor of Philadelphia, Pennsylvania, is instituting a curfew to dissuade marauding mobs of mostly black youths bent on violence.

Is there a lesson here for New Zealand? I don't foresee such violence in this country even in reaction to a right-wing Government following the lead of Britain and the US. What about the debt crisis? The debt crises in the US and New Zealand are politically manufactured. In the US, the debt ceiling had been previously raised 27 times without incident because, in more bipartisan times, there was acknowledgment that Congress had to act because the ceiling represented spending it had enacted already, not future debt.

New Zealand's debt crisis is also political myth-making. That $300 million of weekly borrowing we hear about represents current account debt, and 70 per cent of it is due to debt servicing to Australia-owned banks. It's 7.5 per cent of GDP (GDP=$200 billion).

The public debt, which represents government indebtedness, is 25 per cent of GDP. That's the real debt which can be compared with that of Greece, whose public debt is 140 per cent of GDP.

The total foreign debt is $253 billion - a large figure. But 80 per cent of it is private debt, not public debt, debt to banks or foreign companies by companies nominally in New Zealand.

The CIA, the source for these figures, also rates NZ as the third most business-friendly country in the world. And as countries go, NZ's debt to GDP ratio puts us at 99th in the world for danger of default. Standard and Poor's rates NZ debt as AAA.

In pursuit of facts and the basis for scepticism about fear-mongering by Act and National on debt, google "New Zealand debt to GDP ratio". The fourth entry is parliamentary debate of August 6, 2008, when that ratio was 17. Helen Clark, then Prime Minister, accuses John Key of secretly wanting to increase the debt, if elected, in order to lower taxes on the better off. Now it's 25.