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1-Page Summary of Boomerang
Der Weg zum Staatsbankrott
In 2008, the world’s debt had climbed to $195 trillion from $84 billion in 2002. This debt was incurred through loans that were almost free and available worldwide. It was unlikely that these debts would ever be repaid. Repayment could only be possible if solid growth occurred. In 2008, investors still believed governments were credible and they could lend them money without risk for bank bailouts. That trust has now disappeared because of government overspending and central banks’ inability to support their banking systems with bailout funds—which then became sovereign-debt problems instead of banking-system problems; it also led to increased borrowing costs for governments as investors withdrew or demanded higher interest rates due to the greater risks involved in lending to those countries. As a result, government debt continues increasing which means rising interest rates will follow suit (interest rates are usually tied directly or indirectly with government bonds). For example, Ireland had a national debt equivalent to 25 times its annual tax revenue in 2008 while France and Spain have reached 10 times their annual tax revenue at that time (see graph below)
Islands Weg in die Pleite
In 2008, Iceland’s population of 300,000 had to cover losses totaling $70 billion USD when three major banks collapsed. That was about 850% of the country’s gross domestic product or 230 thousand dollars per person. In addition, there were billions in losses from currency speculation as well as a 85% drop in the stock market. The boom that preceded this collapse was enormous: From 2002 until 2007, Icelandic assets abroad went up 500 times over. By 2003, deposits at the three major banks grew from a few billion (about 100% of GDP) to 100 billion Euros 3 years later. This money allowed Icelanders to buy stocks and bonds or foreign real estate with borrowed funds because demand drove prices higher still. However, often they bought second-rate or poor quality assets like airlines and football clubs; financial literacy was low but growth continued nonetheless thanks to loans based on unrealistic collateral values. Despite these facts the people believed they were superior and their natural talents would be recognized after 1100 years away from civilization—despite warnings by outsiders who knew better than them what could happen if they kept borrowing more than they could ever hope to pay back!
Griechenland: Kreative Mathematik oder Betrug als Volkssport
Greece joined the European Monetary Union in 2001. This allowed them to get loans at similar rates as Germany. One of their conditions was that their budget deficit would not exceed 3% of GDP. This condition was met, but they did this by manipulating other statistics such as for example the consumer price index (CPI). They froze prices and lowered taxes on alcohol, tobacco and petrol so that inflation looked lower than it actually was. In 2009, Greece first stated its budget deficit to be 3.7%, only later revealing that it really amounted to 14%.
2010 The Greek debt was about €830 billion, or €175 000 per working person. It wasn’t the banks that caused Greece to go into crisis; it was the country itself. The banks lent more than 30 billion euros to the government, which disappeared through corruption. If you cheat on your taxes in Greece with more than 150 000 euros, you will risk a prison sentence – but it takes 15 years for tax cases to be decided. When a tax official has taken bribes, there is only a 7-8 year wait before court proceedings begin. Two thirds of all doctors declare an income below 12 000 euro per year. There’s no functioning land registry; calculations used in determining property values are outdated and inaccurate.
