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In response to street protests around the world, governments are adding to their already considerable debt to give tax breaks, subsidies, and other supports to outraged consumers as food and fuel prices ratchet up to new record levels.
In Peru, soaring fuel prices sent people into the streets where they clashed with riot police. At least six people were killed. President Pedro Castillo, a former labor leader, then cut fuel taxes and raised the minimum wage.
In Greece, farmers drove their tractors to the Ministry of Agriculture building to demand help. Sicilian truckers interrupted food deliveries, as did drivers in Spain, leading major food companies such as Danone SA to warn of possible production cuts.
Inflation in Spain ran at 9.8 percent last month, the fastest since 1984, as we reported in “Eurozone Inflation Sets All-Time Record in March” (5 Apr 2022).
In mid-March, France forestalled a truckers’ strike by enacting a €400-million relief package that included direct payments to drivers; Spanish truckers rejected a €500-million aid offer as too small.
Governments are adding the new support programs atop two years of rising debt related to the COVID War. The European Union has budgeted more than €2.3 trillion in new spending to help member states recover; the U.S.’s total COVID spending topped $4.5 trillion, CNBC reported.
The new aid plans will push Eurozone’s member nations to average budget deficits of 4.5 percent of GDP this year, Capital Economics calculated.
Poor nations, many of which already are approaching debt crises, are being squeezed even harder.
Kenya will spend $500 million over the next two years to ease consumers’ pain the government announced. Zambia is increasing fertilizer subsidies for corn farmers, breaking its promise to cut its debt.
Egypt, which normally brings in about 70 percent of its wheat from Russia and Ukraine but now must compete for other supplies, is seeing government spending swell by about $1 billion this year to continue bread subsidies for 70 million people.
India has earmarked $40 billion through next March to help farmers buy fertilizer and consumers buy food.
The program could claim as much as 1.5 percent of India’s GDP this year, director Andrew Wood at S&P Global Ratings told The Wall Street Journal, crimping the government’s plan to cut its budget deficit from 6.9 percent to 6.4 percent this year.
TREND FORECAST: We have long warned of the dangers of the rising tide of global debt in “Super-Meltdown: Debt Market Time Bomb” (9 Sep 2020), “ECB Warns of Dangers from Debt Load” (25 May 2021), “More Credit Cards, More Debt” (7 Dec 2021), “U.S. Public Debt Tops $30 Trillion. Who Cares?” (8 Feb 2022) and other articles.
Inflation, rising interest rates, and politicians’ and families’ inability to balance budgets will make it increasingly hard to cover interest and principal payments on debts, from households to national governments.
As the global debt bomb explodes, a growing number of households, businesses, and nations will be unable to meet their payment obligations.
Among households, that will mean more bankruptcies, more damage to credit scores, and more people with less ability to buy, crimping economic growth.
The resulting crunch will be especially hard on emerging nations, which began the COVID War already heavily in debt. Now, however, developed countries will be less able or willing to give money to rescue them, leading a growing number of developing countries to default on their debts. This in turn will spark anti-establishment and “progressive” political movements—part of our New World Disorder trend that we have been tracking for more than two years.
We repeat the point we made in “Global Economy Faces ‘Debt Tsunami’” (1 Dec 2020): as debt levels rise and more countries default, prices of precious metals and Bitcoin will rise as people seek safe-haven assets.
As economic conditions deteriorate in these failing nations, social unrest will escalate and people will take to the streets to protest low wages, high prices, and governments’ inability to act effectively.