Thursday, April 14, 2022

Deflation on the Horizon - Vox Popoli

Sri Lanka just defaulted on its debts for the first time since independence in 1948:

The Government yesterday signaled Sri Lanka was bankrupt, announcing a temporary suspension of repayment of all external debt as of yesterday, saying the country can no longer honour its commitment owing to poorer financial position caused by external and internal shocks.

The move puts an end to Sri Lanka’s outstanding track record of servicing its external debt obligations since the independence but a “negotiated or soft default” is viewed as more respectable as opposed to a disastrous “hard default”.

Treasury Secretary Mahinda Siriwardena told journalists yesterday that the “orderly and consensual” restructuring of external debt obligations will be buttressed by an economic assistance program supported by the International Monetary Fund.

He recalled that Sri Lanka has had an unblemished record of external debt servicing since independence in 1948.

“However recent events including the COVID-19 pandemic and fallout from the hostilities in Ukraine, eroded Sri Lanka’s fiscal position,” he said.

It’s not a secret that the Neoliberal World Order is collapsing. And this is how it happens, with defaults on the periphery gradually having an impact on the banks that make up the heart of the foundation. That’s up to $51 billion that just disappeared from the money stock, which is the equivalent of $165 for each US citizen.

As more and more of the most intelligent part of the commentariat are beginning to understand, money is no longer printed. It is created through loans, and when debtors cannot service their debt – Sri Lanka could not repay the $6 billion it presently owed – or when debtors elect to borrow money in other currencies as will increasingly happen in the wake of the recent US sanctions – the money supply contracts.

This process has already begun, despite the higher food and gas prices that are the result of war-related supply shortages.