RECESSION AND NATIONAL DEBTS

Recession and National Debts

Recession and National Debts

Introduction

Recession

A recession is a period of longer than twelve months during which the growth rate of Gross Domestic Product of an economy is negative.

When there is growth, and there is inflation, it says there is stagflation. If the recession lasts for a long time is called depression.

What are the symptoms that suggest a recession?

* Rising unemployment, the inability to generate new jobs because there is no growth, in the case of negative growth, increasing layoffs.

* Decrease in consumption, either by increasing prices (inflation) or by reduced consumption capacity (less money, higher interest rates on loans, etc).

* Increase in nonperforming loans of funds, due to lack of ability to pay of debtors, which in turn is caused by inflation and rising interest rates.

* Decline in GDP, since it reduces consumption.

* Increase in inventories, especially in manufacturing industry (Mehrling, pp. 207-218).

National Debt

National debt, or government debt, is the total amount of money that the government has borrowed from any source. Every level of government, from the federal to the municipal levels can have its own debt. All these debts are included in the total national debt.

There are two types of national debt: internal and external. Internal debt is funds borrowed from sources within the country. The money for this type of debt is raised by selling securities, government bonds, and bills. External debt is funds borrowed from foreign lenders. This can include private sources, other countries, and the International Monetary Fund (IMF).

Discussion

The Third World debt crisis was a consequence of the inability of debtor nations to service their external debts. Their burgeoning debts dramatically increased in the 1970s and 1980s and were a result of legacies of colonialism coupled with structural factors in the postwar world economy and historically specific circumstances related to fossil fuel-dependent development and the oil price shocks of the 1970s. Seeds of the crisis were sown at the 1945 United Nations Monetary and Financial Conference, commonly referred to as Bretton Woods. The International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF) were created at Bretton Woods, and plans were laid for creating the General Agreement on Tariffs and Trade (Jorgenson, Ho and Stiroh, pp. 3-24). These institutions have played major roles in creating structural conditions for unpayable Third World debt within the neoliberal economic paradigm of globalization. Many Third World nations continue to service unpayable debts to the present day, and these debts create leverage points for the domination and exploitation of both people and environments by transnational corporate interests.

The effects of social and environmental exploitation that derive from the economic vulnerability of nations in debt crisis are exacerbated by socially and environmentally destabilizing legacies of the postwar green revolution in agriculture that forced many subsistence producers from the land and into megacity slums and resulted in massive losses of topsoil and declines in soil fertility (Abrams, pp. 177-188). During the debt crisis, Third World nations experienced rapidly increasing ...