Debt and the Danger of War

Among the most disruptive forces when it comes to families and marriages is the state of their finances, with close to sixty percent of divorcees claiming money was a primary cause of their breakups. No wonder, then, that divorces tend to rise in times of economic downturns and turmoil.

Is it so surprising, then, that money trouble -- and debt in particular -- puts nations, even friendly ones, in danger of war?

Ongoing war profiteering is not at issue here. Neither are wars that seek to capture profit-generating natural resources, from sugar in British Imperial times, to oil in American Imperial times. Instead, what the cases of Chinese, Greek and American national debts -- more closely tied than most realize -- make clear is that national debts are themselves dangers that can lead to civil and/or international wars.

The premise of debt and the danger of war is simple. Imagine four people decide to print one hundred bills and divide them equally. The only way for one person to accumulate more bills than another is to get them from someone else. Now, imagine that one person borrows five from another and the lender asks for seven in return. Where will the other two bills come from? The two other people.

The only way to avoid conflict in this zero-sum game is to print more bills, leading to what we call inflation, which is why we live in a giant bubble called the global economy, waiting to explode just like the debt-based U.S. housing market, until it is fixed once and for all. All the fantastically ingenious fixes economists come up with (or lack thereof) can at best forestall the inevitable and, at worse, intensify its dangers.

To see how this premise can translate into actual conflicts today, take, first, the most pressing case of China. Once called the "sleeping giant," China is in the middle of a historic shift from being the world's biggest producer of cheap goods to being the world's biggest consumer of not so cheap goods, including luxuries Euro-Americans have taken for granted for decades, from dishwashers to color televisions. A parallel can be drawn with the U.S. in the 1950s, a post-war boom from which it has never recovered.

Recognizing declines in exports due to the global recession, the government has taken active measures to make up for it from within. By mimicking disastrous U.S. loan practices, the government may allow individuals to obtain guarantee-free loans of five times their own salary from banks. This would cause prices of such goods to go up worldwide, inflaming inflation. If things go wrong, the current currency war between the U.S. and China could become one of a different kind.

Second, take the relief that came to international market players and heads of state this week as France and Germany agreed on a Euro and International Monetary Fund (IMF) bailout plan, which in no way masked their deep-seated fears on another global financial crisis with Greece as the trigger, but rather underscored the EU's fiscal facade. Violent protests by unemployed Greeks against their government have been taking place for weeks, with anger at national debt cover-ups and corruption turning into a string of attacks.

Although far from civil war levels, the seeds are clearly there should someone with enough bitterness and skill decide to grow and sow them, a state in which Greece is far from alone in the world. It is not far-fetched for the socialist call to arms, "workers of the world unite," to become the capitalist cry of "debtors of the world unite."

Lastly, take the American national debt, which ballooned a decade ago with the wars in Iraq and Afghanistan coupled with the poor (to put it politely) fiscal management of the Bush administration, at least compared to the brief era of national surpluses of Bill Clinton's war-free era.

Among the first foreign heads of state to visit the U.S., after the proverbial shit hit the fan in 2008, was China's Premier Hu Jintao, whose country owns the bulk of U.S. debt. The point here is that countries whose leaders get desperate with foreign debt, like Germany did after World War I, are potentially more dangerous than those countries whose citizens demonstrate, because they have bigger arsenals at their disposals and can aim further.

Photo credit: SqueakyMarmot