Reuters columnist, David Cay Johnston, explains how the six central banks put your money at risk in order to mitigate the European debt crisis and why it won't work.
What does it mean for taxpayers that 6 big central banks around the world all took action to ease the European debt crisis? Well, it means that you are going to be put more at risk for spending that wasn't covered by taxes. Governments, so long as they have monopoly control of their own currency, can never go broke on their own currency. That's why Japan has debt now that's twice it's annual gross domestic product. And yet, it's interest rates are around 1%. Indeed, over the last decade, interest rates have been falling. Unfortunately, in Europe, the number of countries with separate economies are all under a single currency. And as a result, those countries that don't have sound budgets are not able to persuade investors that they will actually be able to repay their debt. The investors want higher interest rates. And as a result those countries face a risk of default. What the central banks are trying to do is stave off default. By, in essence, helping these countries roll over their debt into the future. But sooner or later we have to address the fundamental reason the countries don't have enough tax revenue to pay off their debts. And that reason is lack aggregate demand. Not enough people have good paying jobs. That's the issue.