Islamabad (that would be Pakistan). The government of said country will establish deep debt markets which are essential to "get rid of commercial banks that had made the Ministry of Finance hostage." At least that's the interpretation that the newspaper The Express Tribune outlines in its article "Incoming: New loans of $2.2b to come in next two months". Three cheers for the Pakistani government: Hip! Hip! Hurray! They will fight these private bankers with new money borrowed from… bankers? Wait, this can't be correct? Can it?
Well… it is.
Short story follows.
It so happens that previous Pakistani governments have been borrowing money like drunken sailors for the last 10 years (or more – see graph below).
And, of course, eventually the bankers that loaned the money began to demand payment but the Pakistani government does not have the money. They are running an inflation of "only" 11% annually to print–finance their budget. That's OK. The World Bank will loan them $2.2b USD at the low interest rate of 1% to be returned over 37 years. But even this is not enough. Islamabad (in all its wisdom) will "float" an Eurobond for $500 million USD paying a ROI of "only" 8.5%!!! And who were hired to "advise" about this wonderful new iinitiative? International banks!!!
But that's OK because the latest auction of the 10-year Pakistan Investment Bonds (PIB) was a huge success, bringing about $5b USD at the low, low return cost of "only" 12.9%!!!
Apparently, that's OK because Pakistan is "trying to meet the International Monetary Fund (IMF) target for net international reserves and reducing borrowing from the central bank."
Apparently, all this borrowing from sources other than the Central Bank is OK because "The launch [of all this debt] is aimed at diversifying the investor base in government debt".
This is so bizarre, that we absolutely, positively, definitively need to translate it into human–language. According to the Pakistani government:
For the last 10 years or so, the government of Pakistan has been somehow threatened into borrowing money well beyond what they can afford. Apparently it was something along the lines of: Our money or your life! The Pakistani government obliged. Time went on, and the government (lacking means to repay the loans) is now held hostage by those evil, evil bankers that forced them to accept all those loans. But not to worry, the government has a plan. The government is already "borrowing" from its Central Bank (i.e. printing and spending) but this is not enough to protect the people against those evil, evil bankers. As part of the master plan, the Pakistani government has issued $5b USD in local bonds and currency for an interest rate that is completely disproportionate to anything in the market; "only" 12.9%. But even this is not enough. The very same government will issue another $0.5b USD in Eurobonds at the low, low interest rate of "only" 8.5% but in order to be successful, it hired those evil, evil banks that forced them to borrow all that money before. But even this is not enough. This very same government will get a loan for $2.2b USD from the World Bank for "energy and taxation reform". Whatever...
And so, the government of Pakistan, having found itself in debt far beyond its means is going to borrow like a drunken group of sailors in order to "fix" this problem. They will do this so that they won't have to print that much money, which they are printing because they can't even pay the interests of the previous debt! But that's OK because in this way they will get rid of all those pesky banks that want their money back since "Maturing debt instruments is a constant trouble for the government and the Ministry of Finance". Yeah… having to pay debts back is a real drag…man…all those deadlines…they really bring all that bad karma…ugh!
And what will all this accomplish? It will "diversify" (aka add) more government debt I.O.U's into the Stock Exchange.
Uhu…
Let's just say that we are not impressed, not even entertained.
Allows us to summarize. Pakistani government bankrupt STOP Need more money STOP Will borrow to kick problem forward STOP Ridiculous conditions acceptable STOP Politicians jobs saved STOP Initiate disinformation plan now STOP People must stay dark END OF MESSAGE
The saddest part is not that the Pakistani government is doing this; the saddest part is that this is so common and so much routine that nobody even notices. Furthermore, the numbers the Pakistani government is playing with, are chicken feed when compared to the massive amounts of debt that EU governments are taking on. Or Japan. Or USA or the myriad of other countries drowning in debt.
Who cares, right? The debt is already un–payable so, why not take more?
Because each time they do, the standards of living of their citizens, those that actually pay politician's salaries goes just a little bit down the drain.
No, we lied.
They actually go a lot down the drain.
This is simple common sense. You are in debt and instead of stopping the borrowing, re–financing and working harder to pay the debt off, you borrow more! Does this sound right to you? Or is there too much common sense? Please tell us because if there is, we can always dial up the level of horse manure… governments seem to have no problem doing this then why should we?
Simple. We promised.
And there you have it. Un–adulterated manure straight from the government's mouth (btw, that image is disgusting).
In any case, if the truth smells, there must be a rotting government somewhere.
Prosper. Be powerful. Free yourself.
Or not.
Your choice.
Note: please see the Glossary if you are unfamiliar with certain words.
