Why is it that a municipality like the City of Detroit went bankrupt?
And why is it that a country like Egypt , hit with a torrent of
calamities from all sides, weathered the storm and remained on its feet without
flinching? To answer these questions, we first need to understand a few
concepts in two areas of the economy: wealth creation and financing.
Let's begin the discussion with an illustration. You just
graduated from college with a degree in geology. You are young and have nothing
to your name except a small amount of money that will keep you going for a few
months. But instead of seeking a job with an established company, you choose to
become an independent prospector, and go look for an opportunity out there in
the wilderness. You get lucky and discover a multi-metal deposit that can be
mined commercially. This is wealth because where there was nothing there is now
something. But it is wealth that is not yet useful because it has not gone
through the many steps that will be necessary to transform it into consumer
items called end products.
The first step that needs to be done to get there is mine
the metals, which means extract them from the ground. To this end, you can sell
the discovery to an existing mining company that will do the work. It will pay
you an amount of money that may be large enough to let you retire and live the
good life without ever having to work again. On the other hand, being young and
ambitious, you may decide to live out your dream and practice your passion to
the fullest. To this end, you will need to establish a mining company of your
own, become its chief executive officer and run its day to day operations.
The catch is that to do all that, you will need financing at
the outset. This will be money you will use to establish the company, erect the
buildings and related installations, buy the equipment and hire workers. From
where to get that money? Well, there are two principal methods by which to
obtain financing: one method is to borrow money from the bank or a similar
institution; the other method is to sell shares in the company you propose to
establish. This means you will take as partners, people who will own a portion
of the company in exchange for money they will pay to its treasury – thus allow
you to launch the project and get it going.
You decide to do both; borrow some money and sell a number
of shares. With cash flowing into the company's account, you start to work on
the infrastructure that will bring the mine to life. Almost instantly, other
prospectors and existing companies descend on the area, giving it the look of a
mining camp. The participants stake their claims; they prospect for deposits,
bring all sorts of equipment, drill holes and move the earth. With each discovery,
new people are brought to the camp, and they necessitate the construction of
new housing, new accommodations and all sorts of amenities that go into a human
settlement.
You now have what looks like a town that cries out to be
incorporated into a legal municipality. This prompts the people of the area to
get together and agree on a constitution, as well as elect the members who will
serve on its governing body. This done, you have a town that needs services
ranging from the collection of garbage to providing the citizens with
protection from the elements when feasible, and providing it with police work
when necessary. For these reasons, the municipality is given the right to plan
its own growth, enact its bylaws, levy taxes on businesses and levy rates on
home owners. It is expected to spend that money in a manner that best serves
the interests of its taxpayers and ratepayers.
Depending on several factors, the municipality will remain a
mining town till the ore reserves are depleted – perhaps in two or three
centuries – after which it will become a ghost town. Alternatively, it may
attract industrialists and other entrepreneurs who will set up manufacturing
plants and service industries that will add value to the ore and transform it
into semi-finished products that other industries will use. As well, there will
be enterprises producing finished goods ready for the consumers to pick up and
pay for.
If this happens before the ore reserves are depleted, the
town could grow to become a large metropolis, attracting all sorts of
industries, research centers, universities and other institutions that will
come and establish themselves inside the city limits, run profitable operations
and pay taxes. And the city will have a bureaucracy of civil servants that will
keep growing with it so as to handle its growing business and growing needs.
This is what Detroit
looked like before it began to decline and ultimately go bankrupt. It may not
have followed a scenario exactly similar to the one described above while growing
into a city of more than two million people, but this would have little to do
with the reason why it went bankrupt. Detroit
started to decline because it remained essentially a one-industry town – an
auto industry that was hit hard by foreign competition using cheap labor.
Still, the city could have survived this ordeal and could have gone on to
thrive again by diversifying its industrial base, thus avoid bankruptcy. It
could have done this well were it not for the fact that throughout the decades,
it also loaded itself with something called unfunded liabilities.
What's that? That can be one of several things. The most
important being that insurance premiums are deducted from earners and given to
a government at some level – from the municipal to the federal – in exchange
for a legally binding promise that the earners will be entitled to receive
regular payments upon retirement; or receive payments before that time should
the payer become disabled or temporarily unemployed. The trouble is that it can
sometimes happen that the money collected by the government is wasted by
mismanagement, bad luck or what have you. And so, unable to fulfill its
obligations, the government will have no alternative but to declare bankruptcy,
which means ask the courts to relieve it of obligations it can no longer
fulfill. This is what happened to Detroit
whose retired civil servants grew in numbers at a time when people and
businesses were leaving town.
Another way for a government to accumulate unfunded
liabilities is to guaranty loans taken by someone else, a habit for which the
federal government of America
is notorious. This can range from loans taken by students which is a laudable
thing to do. But it can also be loans taken by a parasitic entity such as Israel ; a
horrific thing to have done and to maintain to this day. Students are the
future of the country, when they do well; the country does well and will be
able to fulfill its obligations. But in the case of Israel , this is a hell hole that
has no economy to speak of. It is a little bit like the Cayman
Islands where tax cheaters hide their money. A little bit like Cyprus where
shady moguls park their money. And a little bit like a front enterprise; a
hollow shell through which mafia bosses launder their money and political
bosses get funded under the table to then peddle influences in the service of
their mafia bank-rollers.
The day of reckoning is approaching because those moguls are
realizing that their project has lost its viability. They tried to create a
base out of which to takeover the world by funding violent Israeli activities
aimed at stealing land and water from the immediate neighbors, and by provoking
other people beyond them. The moguls also trained American politicians,
especially those in the Congress, to erupt in joy every time that Israel spills blood in the Middle
East . When this happens, diplomatic support is extended to Israel as if to
congratulate that thing for a job well done. Also, more money and more weapons
are transferred from America
to Israel .
But then America
started to approach a critical point in its own finances. Fearing that the
country has been exhausted partly because of their own actions, the Jewish
moguls started to look toward China
and Russia
to see if they can duplicate their American adventure somewhere else. The
essence of Israel's relationship with America being that America remained mum
or erupted in joy when Israel spilled blood in the Middle East every time that
Netanyhu boarded a plane to go to Washington, the moguls wanted to test the
reaction of the Chinese and the Russians in this regard.
To this end, they sent Netanyahu to China right after committing the criminal act of
bombing someone – this time Syria .
The response has been that upon Netanyahu's arrival, the Chinese told him to
turn around and get out of there before they charge him with crimes against
humanity and sentence him to life digging coal in a Chinese coal mine – not
exactly these words but something to that effect. And so, the moguls sent
Netanyahu to Russia
right after committing a similar bombing act. And the Russian response was to
tell the ugly duckling from Israel that if he did not get out of there fast, he
will spend the rest of his years in a Siberian gulag – not exactly these words
but something to that effect. And this was the moment when the Jewish moguls
became convinced that Israel
had become a lost cause from which they must cut and run. And they are doing
just that at this time.
As to why Egypt
has survived and why America
will survive; it is because they each have a diversified economy. There may be
a Detroit or
two in each of them, but other thriving municipalities exist as well that
contribute to the wealth of the nation. Unlike Israel
and Cyprus that serve as
transit points where money is parked, going from one jurisdiction to another, Egypt and America create real wealth in terms
of agriculture, mining, quarrying, manufacturing, construction and all the
services that are required to make those operations possible, and make them run
smoothly.
The creation of wealth is what makes an economy, not the
handling of wealth crated by someone else. When you create wealth, you may
experience a financial bottleneck once in a while, but you will outgrow it to
thrive again. But if you only handle the wealth that someone else creates, the
first serious bottleneck you experience will be the one that will break your
neck and put you out for good.