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In July 2011, Obama administration was struggling for rising up the debt ceiling. Starting from Little Bush’s administration America has accumulated its debt to 14.3 trillion dollars. Today every dollar that the government spends has 40 cents paying for interest. According to the report from Brown University, counting the interest and the benefit that we have to pay to the wounded soldiers the actual cost for Iraq and Afghanis war was actually close to 3.7 trillion dollars. Right now the 14.4 trillion dollars national debt is close to 80% of the country’s GDP. Meanwhile the bonds and pension deficit that our local governments have were not less than 3 trillion dollars. Counting that, Americans’ debt ratio will be over 150% of our GDP. Those debts might not be covered by our Federal government but definitely have to pay by some departments or we will create default.

The financial situation in Europe is not better than U.S. In July 2011, Europe faced financial crises created by Greece. For receiving fund from European Union and International Monetary Fund Greece government has to cut budget. Greece parliament hardly passed a framework bill (155-138) involving $39.7 billion tax hikes and budget cut. During that moment thousands of Greeks protested in outside parliament. Policemen had to throw flash bombs and tear gas projectiles to drive back the crowd. Those people hope their government to get rid of their debt by getting into default. They said Greece has no future when carrying out those debt and interest. People over there react so tough because they believe that it was the government’s high rank officers and bankers mix up the financial situation. It is not right to let people pay for the debt by cutting their benefit. Right now Spain’s unemployment rate above 16% and unemployment for youth is over 40%. The same situation actually exists in at least four other countries in Europe. Partridge and Irland government’s bonds were considered junk by Moody in July,2011 as well.

Those countries have other loans beside government debt. It is said private loan that the four bigest Franch banks put into Spain is 3.4 times of the Spain government bonds that they hold. Private loans that they have in Greece is 33 billion Euro, 100% more than the Greece government bonds that they hold. Germany has the same trouble. Personel and business loans that their banks gave to Spain and Italy were 174 billion Eruo and the government’s bonds they hold is about 70 billion Euro. If those countries go bankcrupt the situation will be much wrose than we expect.

During that time Chinese Government leader Wen Jia Bao visited Europe and promise to buy more bonds from Europe. As the biggest creditor of U.S and Europe they don’t want to see dollars and Euro collapse. Unfortunately, the Chinese financial situation is not that good as what we expect. Their local government’s debts can give their banks trouble any time. It is said just debt that local governments have to pay back in 2011 was 40 billion dollars. Their total debt is 166% of their GDP. Within 5 years 1 trillion dollar debt will be due and all those debt is tied up with the central government. From 2006 to 2009 RMB supply increased 29% and loans released by their banks increased 32%, up to 14 trillion dollars. Moody, an international financial institute worry that 8% to 12% of their loan are bad debt. Before Aug 19, 2011, three of their banks will have over 12% shares unfreeze in the market, 160 billion dollars share are hold by the American banks. That means those Chinese bankers will face pressure by then. For meet government’s cash require regulation, during end of every month, the Chinese bankers pay short term interest rate equal to annual rate 36%. The crisis that the Chinese banks created is not less than what the Wall Street did because of lacking controls and serious corruption there.
It is times to face debts problems that exist in worldwide. It is said Moody, a financial authorities starts to consider that using new debts to cover old debts is default. Being pressure by their people Greece Parliament might not be able to pass the bill to prevent default. We have to seriously take care of those debts and solve the social problems it creates. How? I will mention it in next article.