Stuff You Should KnowShould Rich Countries Cancel Poor Countries’ Debt?
It sounds controversial, but there are persuasive arguments for the wealthy Global North to write off the debts lower-income nations have accrued. Some say the US and Europe actually owe it to them. This is one of those boring ones you shouldn’t skip.
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Hey, and welcome to the podcast. I'm Josh and there's Chuck. It's just the two of us, the dynamic duo doing our thing. Training wheels are off. This is stuff you should know.
Can I have a brief preamble?
Oh? Please?
Well, I know people skip around our show. Some adherents listen to every single one, of course, which we appreciate. But some people pick and choose, just like I do with my favorite show sometimes. But I want to urge people to listen to this if at first they're like debt cancelation boring, because you know, economics is not my jam at all. But like I realized that having an understanding of global debt and debt cancelation, it's really a pretty fundamental. Like having that fundamental understanding really helps you understand so much about politics and global economy. And just when you hear that stuff on the news and you don't get it, I think it's really easy just to think, like, oh, America is paying everyone's debts, right, and that's.
Just not how it works.
And to have a real understanding of that, I just think makes you more well armed as a human.
I think that was an excellent preamble. Man.
Thanks, this is really good. Livia crushed this article, just absolutely crushed.
It was so clearly in her wheelhouse, and I was actually approached to thinking it was going to be interesting, and it turned out to be one of the most fascinating things I've researched in a very long time.
Ohough, are you going to say it turned out to be super boring for me?
No, I'm really into this because you're right, like, when you peel this back, you're looking at the inner machinations, the most basic functioning of the global economy that there is. This is it, this is what it all runs on what we're about to talk about, and it's hugely important. And there's an idea that the West has been taking advantage and I'm going to accidentally say the West a lot. There's a lot of different ways you can talk about the different income countries. Apparently, like the World Health Organization says low and middle income countries. Yeah, the United States and Europe would be higher income countries. Some people say developed and undeveloped. There's a lot. It's like a minefield basically. So I'm going to accidentally say the West a lot, which is not correct anymore, but it still gets the point across.
Yeah, and I think Livia not I think, I know, she went with the term global South to refer to what were we think of as generally lower to middle to lower income countries. She did make that up, but that's you know, it's a collection of largely sort of Latin American, some Asian and African countries which we're going to be talking about, so we'll probably mix and match.
I'll probably say global South a lot.
Yeah, that's a I mean, I've seen that virtually everywhere as well. I think the low and low middle income countries called licks and mix as like it's super wonky. Yeah, it is a little cute for what we're talking about, because, I mean, what we are talking about is the idea that has become more and more widespread that the global North, which I just recently referred to as the West, has long been exploiting the global South, basically taking advantage of it for its natural resources, cheap labor, and then using that money to enrich itself, right, not really funneling much back. And then when it does funnel it back to the global South, it does so with strings attached or interest rates in the form of loans, bonds, that kind of thing. And there's this idea that, like, that's just totally unfair, that that this playing field has started out from the get go so imbalanced that the only responsible, human, humane thing to do is to cancel the debt of some of the poorest countries in the world.
Yeah, I mean, it's kind of that simple, you know, there's this idea, and libby us is a great, just sort of example to bring it home. When someone steals your credit card or steals your identity and racks up a bunch of money in your name, you don't have to pay for that. That is something that you're not on the hook for. And there's this called odious debt. There's a lot of people that think, you know, we should apply that same logic to sovereign debt. And this isn't a new idea. This idea has been around for about one hundred years or so a little more than that, with the idea of the Spanish American War coming to an end when the US gets control of Cuba from Spain, but Spain, as the colonizer, had racked up a ton of debt on the back of Cuba and the US. And we'll talk about the power structure of why they were able to do this. It was basically because they had the power through the Paris Peace Treaty and said, hey, Cuba, this is your fault, this is Spain's fault, so you shouldn't be as a relatively poor nation, you shouldn't be on the hook for this. So Spain's got a step up and pay and the US had the power, you know, at the time, they had the upper hand in that agreement. So in the Paris Peace Treaty, Spain was kind of forced into taking on that debt.
But that's not how it always works, right.
No, there's another example that kind of demonstrates the other way it can go, which is with the African National Congress, which was headed by Nelson Mandela in the post apartheid South Africa, and they they were the successor to the apartheid government and they took on all of South Africa's existing debt. Well, they considered that debt odious because a lot of that debt had been borrowed to spend on military and police to keep the population in line and to enforce apartheid, which had been globally rejected. Even little Stevie wasn't into apartheid at the time. But so they said, this is odious debt, like we're not going to pay this, We shouldn't be expected to pay this. This is money that we would be paying back that was borrowed to keep us repressed. How does that make any sense? And the thing is is there's no international law that recognizes the odious debt doctrine. It's more like a come on, guys, like, seriously, let's use our common sense. But common sense doesn't always like jibe with capitalism. Fortunately for the African National Congress, the people who were heading South Africa under Nelson Mandela, they had a huge ally in the Soviet Union at the time, so they were actually like, yeah, Soviet unions like these guys aren't going to pay their debt back and the world is just going to go along with it. The problem is the Soviet Union crumbled and the African National Congres ended up having to pay that apartheid debt back because they no longer had the backing of a superpower any longer.
Yeah, so that's a good sort of post preamble post amble.
It was a pamble.
It's a pamble that brings us to this idea, which is post colonialism, and what do we do about this? And it is pretty pretty much agreed upon by any rational thinker that Europe plundered the world for five hundred years or so, give or take.
Yeah, Europe and the United States.
Yeah, well yeah, Europe, which the United States, which which came from Europe.
Okay, I'm kind of lumping us all in at that point.
I got you.
Yeah, And that plundering basically led to where we are today. It put all these different countries on different paths, one toward prosperity and one path toward being poor.
And there's a better word for that. What's the word opposite of prosperity, impoverished? Impoverished. That's a good one, That's what it was I was thinking. But it's even better.
Yeah, And I mean the way that that happened was the the global North came to the global South and said we're going to take all of your natural resources by force. And that was just straight up colonialism.
Right, Well, natural resources is one thing, but then also and we're going to make you do help us do it on the backs of enslaved people. I mean, we talked about slave labor, and then later on it became you know, cheap labor, which is kind of where we are now. But at first it was there was just no money being exchanged. Is Hi, we're going to take your stuff. You're going to help us take your stuff. And this is going to lead all of these different countries around the world down two very different paths. And the argument is basically like, hey, today, and we'll get way way more into the weeds on this stuff. But this is what led us to where we are today. So the debt forgiveness of these countries isn't just like, oh, you know, you're poor country and we're a rich country, so we got to pay your debts. It's no, we got rich off of your backs for hundreds of years. And so the R word, if you want to bring up something like reparations, is not like a fine that you've paid for being a bad country. It is it's almost like a better and this is people are probably going to kill me for this. But a better way I think to think about it is a long overdue payment for labor.
I think that's the fairest way to look at it. Because the other ways of looking at it makes it seem like that the global South are needy who are getting handouts from the global North who are being heroic by giving them handouts.
Right, So, yeah, which is not true.
No, I agree with I agree with you. I think that that's a really good way to look at at reparations, especially through post colonialism. And the other thing is a lot of people argue against things like reparations based on the idea that, like you kind of touched on it, that this is something that happened in the past. Man, I didn't enslave anybody. I didn't like go exploit the Congolese for their rubber trees and cut their hands off when I caught them stealingly. I didn't do that. My grandparents didn't even do that. I had nothing to do with that. So colonialism, straight up colonialism where you go in and use force and invaded country and say all your stuff is ours now and we're using you as slave labor. That went away largely in the nineteenth century, definitely by the twentieth century, but it was replaced by the same end exploitation. It was just dressed up slightly differently. So like we saw with the United Fruit Company helping overthrow the Guatemalan government, the elected Guatemalan government that we talked about in our Edward Burnet's pr episode, Like it was kind of like that. We would go around, and by we, I mean the Global North. We would go around and destabilize other countries, governments and economies to our benefit if they weren't friendly to the kind of trade and exploitation we wanted from them, right and then we would see to it that somebody else would get installed. Sometimes people just straight up got assassinated, but it wasn't wholesale slavery and slaughter like it had been in colonial days. So that was post colonialism. Today again, the same thing is going on. We're exploiting and extracting the resources from the global South for the use and enrichment of the global North at firesale prices, and then we're selling the things that we use those resources to make back to the global South at greatly inflated prices, which is called the trade inequality. And that is how we're keeping the global South impoverished.
Right now, All right, that's a great boy, you just summed up the whole thing.
We're done.
Then I'll tell you what this is. Early for a break. But let's take a break and we'll talk about this great through line example that Livia included of the Democratic Republic of Congo. Right after this, we should know.
Lar childs of h.
Y s k as w s k as good.
All right, So Livia used this great example, and I love it when in an example in an article like this can serve as a through line through the whole thing. And this this kind of does here and there, which is really helpful for a dumb dumb like me who doesn't really get econ. But I got this, so I know if I can get this, that anyone can. But the Democratic Republic of Congo, which used to be Zaire, let's go back to the old days of the late nineteenth century. They were and are a very rich country in resources, copper, cobalt, diamonds, oil, you name it, lots of rich, rich stuff. In the nineteenth century, King Leopold of Belgium said, hey, the rest of Europe, why don't you let me go down there and basically enslave this country and use it for production of rubber and ivory. And sure, we may kill ten million people, like half of the population but just think of the money that's waiting for us if we do this, and Europe said it sounds good to me, go have at it. Flash forward about sixty something years and they won independence in nineteen sixty and a prime minister was democratically elected named Patrice Lamumba. Six months later, La Mumba was killed in a coup that was supported by our old friends in Belgium and the United States because of a suspicion of being in bed with the Soviet Union. A general takes power Mobuto Cesci Seiko and through the support of the US and other I guess richer Western countries, basically spent about three decades lining his pockets with money and from except for about twenty seven years from seventy to ninety seven, the nation's debt went from five percent of the GDP to one hundred and fifty percent.
Right. And the reason the debt went up so much is because, like you said, he's lining his pockets. And the other countries from the Global North that were lending this money to drc knew that he was lining his pockets. They didn't care because he could turn around and use his country's natural resources to pay off these debts that he was using to enrich himself while his people were impoverished and starved. The thing is is like that is on cesse seiko, sure, right, but also on the lenders, the financiers, who knew what he was doing and did not care about what happened to the people of the Democratic Republic of Congo. They just cared that they had a steady flow of natural resources, and that right there, that's that's as far as capitalism goes. That's fine, there's no moral hazard to that. But the thing that makes this moment in history different than say, the nineteen sixties, is we've now come to question that part of capitalism. Some people question capitalism as a whole, and you can do that, But I tend to think that capitalism itself is not an inherently flawed system, but that it has some really flawed capes that are hung around at shoulders. I don't know why I went with capes, but you get the point, right, And one of those is the idea that corporations should maximize profits at all costs without any regard to morality or global citizenship. It doesn't matter, So those corporations can't really be lumped in in any legal sense, because they're just doing corporations too, being psychopaths who are out to maximize profits as much as possible. So that's where we're at. Like a lot of people just stop at blaming sesse Seiko for being as corrupt as it comes and plundering his own nation, but they're not also like panning to the left a little bit to see the larger picture, And that's what you have to do when you really are examining global sovereign debt crises like we're in right now.
Yeah, for sure. So this is kind of going on a timeline. So that was the sixties and into the seventies. Now we go, which will lead up to the eighties debt crisis. In the seventies, if everyone who knows history knows that.
That was a bad time for oil, I guess a good time.
If you're an exporter, oil prices went through the roof, and if you are an importer of oil, this is going to have a ripple effect, and it did all across the world to basically ramp up inflation, raise the cost of fuel, which affects the cost of a lot of other things. Because of a domino effect. And the other side of this is these oil rich countries that were now exporting. Not only were they getting all this dough and enriching themselves from the oil. Fine, that is what it is. They then said, hey, we can now be a lender and lend money to these poorer countries and some of these Latin American countries that are really kind of growing fast, and who cares about the risk involved and everyone sending up warning signs. We're the lender and we're going to make a ton of interest off of this dough that we now have because of the oil that we are selling to them.
Yeah, that would be a familiar pattern that would emerge. But that oil thing that you were talking about, for non exporting countries like the United States, that was a real problem because we saw just very recently in the last several months, when oil prices go up, all prices go up because everything's so dependent on oil. And that happened in the early eighties too, So inflation started to get so far out of hand. I think it reached like fourteen percent. What was it we were like screaming about recently, like six or eight, which was bad enough. This is fourteen percent, So the guy who ran the Federal Reserve, Paul Vulker, committed what's now known as the Vulgar Shock. He jacked interest rates up so suddenly and so high, I think, up to twenty percent, that it immediately triggered a global recession. And it definitely did, within a couple of years, wedge everybody out of that global recession. It stabilized that inflation, brought prices down, things got back to normal. But you had to be a really rich country to weather that fairly. Well. If you weren't a rich country, you were screwed. And so these countries that had already racked up tons of debt now had high interest rates and low currency values and were expected to pay these loans back. So if you were on like a three point two percent or a four percent interest rate on an eighty billion dollar loan, you owed three point two billion dollars to service that loan. If it went up to twenty percent interest rates, you suddenly owed fifteen billion dollars to service that loan. So Mexico, Brazil, a bunch of other countries, I think twenty seven of them said we can't pay these debts any longer. This is not sustainable and frankly, it's now become odious because of this Volker shock that we didn't do anything to do, but now we're suffering because the US decided to plunge everyone into a global recession to help itself.
Right, So this is going on. All these countries have thrown up their hands basically and said we just can't. Like it's not you know, we're not saying, oh, we don't want to pay that, like we literally can't afford to, and that people started beating the drum, like you said on odious debt again and activists started speaking up. Peru is a great example that you mentioned. In nineteen eighty five, the president of Peru, Alan Garcia, said, you know what, We're not going to pay any payments on our debt in excess of ten percent of our export revenues and that's the only way to keep our country solvent basically, which helped them out in the short term. But then all of a sudden, you're doing that, and every financial institution all over the world looks and says, we can't trust Peru anymore, we can't do business with them, and we can't invest in Peru if we're a company or corporation looking to invest in foreign economies, and that triggered a hyperinflation there by the end of the eighties. And so all of this mess is happening in the eighties, and finally, finally two organizations stepped in and said, we got to do something about this. The International Monetary Fund, the IMF, and the World Bank stepped in. These are two organizations founded post World War two. In part, the World Bank was to help dig Europe out of the economic devastation they suffered during the war, and the IMF initially was just to sort of encourage all countries to get along economically. But then after this, the IMF and the World Bank basically became a lender, a multilateral public lender. That's complicated to sort of explain how that all works, but let's just leave it at It was controlled still by these northern countries, the UA in other rich countries.
And it still is. And bear this in mindful when we talk about today. The IMF is partly funded by rich countries called the Paris Club, which includes the United States and most European democracies. Right, it's nice, it does. It sounds like the kind of place i'd want to hang out. Yeah, I want to go have a sip of something with my pinky in the air, you know exactly, So just put that, put that in your bonnet and smoke it later. Right. The IMF is funded in part by democracies and governments around the world. Okay, so the IMF and the World Bank changed their mandate. They decided now that they were going to basically aid in development around the world, but especially focusing on lower income, middle income countries to help them. And this is the view of the economists that the IMF and their supporters to help these impoverished nations learn to be better capitalist economies and as a result become a self sustate and self supporting, basically creating neoliberal economies where there was say socialist economies or other types of economies opening them up for business. And so they would start sending these loans to these countries that really attractive interest rate, sometimes as low as like no interest whatsoever, in which case it was basically aid, but there were strings attached, and they were things like increase your tax revenue, stop social spending. All those state owned enterprises you have, you need to privatize them to open it for competition, and most importantly, you need to open up your whole country, get rid of trade restrictions, all that stuff, open them up to international business so we can come in as unfettered as we want to. And by the way, to help you understand all this and do all this, we're going to send our own Western economists and advisors to teach you how to do this. And some of those advisors and their successors you showed up in the eighties are still there. They never laughed. They're just part of like that nation's government. Basically.
Yeah, these were called structural adjustment programs or SAPs, ironically, and you know, the proponents would argue what you just talked about, and then people that didn't think it was such a great idea would say, well, this is just sort of a new version of the same thing, right, And which is why they call it neo colonialism. It's you coming in and saying, hey, we want to use your resources and tap your country or sap your country, but you got to spend the money that we're lending you at cheap rates of the way we say. A lot of countries got on board during the nineteen eighties. It also led to a lot of unrest and a lot of protests. In nineteen eighty five, to go back to our example of the DRC, they had these economic policies implemented by the IMF. By nineteen eighty five, the Washington Post did a report that basically said, their hospitals and their schools are decimated. Malnutrition is going through the roof. Activists once again started rearing their heads. There was one guy who I think this bears maybe a deeper dive at some point, but his name was Thomas Sankara, and he was the president of a West African nation called Burkina Fasso in the early eighties and a leftist guy who basically was beating the neo colonialism drum. And in July of eighty seven, he gave a big speech at the Organization of African Unity where he said, everyone joined with us, and let's not pay this debt to our colonizers. Let's remember that idea. Let's get that going again. A few months later, he was assassinated in a bloody coup from his former friend who became his rival, a guy who still doesn't own up to being a part of this like to this day.
His name was.
And I heard a few ways of pronouncing, but I'm going to blaze compare compare.
I like that.
It was kind of tough, but you know, so what happens is a leftist organizer, president advocate against this speaks up and is promptly killed, and then that country promptly rejoins the IMF and World Bank.
Yeah, and sank Kara he was very dangerous because he was starting to make real waves. If all those African nations join together and just said we're not paying you back, tens hundreds of billions of dollars would have just evaporated for the Global North right. So that's why he was assassinated. But he left this legacy of looking at sovereign debt among low income nations in a certain way that some people still kind of see it through today, and which is kind of the lens we're looking at it through in this episode, which is that it's like the colonizers coming into a country, exploiting it, leaving and then sending a bill to the country right to repair the damage done by colonialism. That that's essentially what's going on with the Global North lending money interest to the global.
South right, and in the case of Sinkara at the time, and it's good that he's you know, been sort of canonized, I guess now.
But is that the right word. Yeah, okay.
At the time, basically it's send the message to all other countries, like you see what happened to him when you when you rise up and try and take a stand against this kind of thing, and it basically quashed things until the nineties when Bono got to be in his bonnet.
Yeah, so that's a that's a really interesting thing that happened, and it happened almost exclusive because of Bono. There was a guy named Martin Dent who was a professor at Keele University in the UK, and in the early nineties he came up with this idea that, hey, the millennium's coming, let's use it as a chance to like wipe the debt free. Because in Jewish tradition there used to be something called the Jubilee. We've talked about it before. I don't remember what it was. I think we did one on the Rolling Jubilee. Maybe maybe, But it's this idea that every fifty years in Jewish culture, all debts would be wiped free, right, And they were saying okay, yes, yeah, okay, And so they were saying Dent was saying, hey, let's just do this. We could totally do this and start the millennium fresh and everybody on more of an equal footing. And Bono is like, I like that a lot. And he took this up and very nice. Sorry, he championed it. No, no need for apologies.
I had that one.
He championed this whole idea and I don't want to say single handedly, but largely was responsible for the eradication of about one hundred and thirty billion dollars worth of debt. He did almost single handedly just by going and talking to the right people getting them on board.
Yeah.
I mean, there are a lot of stories of Bono's charm in these rooms with these people that range from you know, brutal dictators to far far right religious zelots like Bono gets in the room with those guys. Bonna is a Christian, very very Christian man, super Catholic, very Catholic. I'm reading his book still now.
It's great.
Oh yeah, what's it called Catholic? Me Catholic?
You by Bona it is. I was trying to think of another riff on that, but that nailed it. It's called Surrender, I think, but really good book. Anyway.
Bono is a guy that can have a lot of sway when he gets in a room with someone. And he got together with Christian groups, with NGOs, with Republicans and Democrats and all kinds of people from all over the world, people he had to apologize for being in the same room with, you know, because he thought he was, you know, doing some good and he was and got a lot of people on board, tens of millions of supporters. It launched formerly in nineteen ninety six, and this was called Jubilee two thousand. I don't think we mentioned the official name. I think it's called what's it called now?
Just yes, that's much better.
Yeah, it's a great name. I like Jubilee two thousand. That has a fun ring to it.
Sure, and I think it served its purpose for a while.
But because of things like the Christian group involvement, you had Republicans on board.
In some cases.
There was a guy named Spencer Bacchus from Alabama, a rep there that basically said, hey, this will cost each American a dollar twenty a year to get children out of hunger all over the world. And it's not that much money. Some people were slower to come around, but even people that were slower to come around eventually said, well, listen, they're probably not going to pay it anyway, so maybe we should get on board with another plan.
Right, not everybody?
Did.
I read this American Heritage contemporaneous article that was like this, this is reckless, especially for the GOP. It's going to cost America billions of dollars and for what And now in retrospect, it's like that article has an age very well for humanity, that's what actually And so Spencer Bacchus, he's a real hero here, like he made this his mission and he actually reached across the island, worked with Maxine Waters, an arch liberal, and got what was called the Jubilee Act passed finally in two thousand and eight. And it was a hugely bipartisan act that wiped out a lot of debt that America held. And by America being a part of this and other European nations being a part of this, other nations started to follow. Like Bono would say, the IMF got on board, the World Bank got on board, and so suddenly a lot of money that the global South. Oh, the global North was just wiped out.
Yeah, Bona said, every country deserves to live free of poverty. Every street should have a name.
Do it in the name of love.
Oh wow, we could really go down a rabbit all here.
Yeah, on your knees, boy, I'm not sure that fits.
Yeah, that's pretty good. So seventy percent, I believe was the number. Initially, the debt was going to be reduced by seventy percent for thirty three different countries in Africa, Latin America, and Asia, and the US agreed to more debt cancelation. I think there was a Jubilee debt campaign in the UK that stepped up between twoenty twenty fifteen that was about one hundred and thirty billion dollars worth of debt canceled. And we do should we should point out, Liviya very and I'm glad you did this. Reminded that it's not a dollars dollar thing, like you can spend one hundred million bucks to maybe cancel a billion dollars in debt sometimes, right, because.
You're taking into kind of all the interests and researchructing and all that stuff involved, you're just they really just owe you one hundred million in principle, but it ballooned up to a billion dollars. But as far as that lower income country is concerned, that's a billion dollars. They don't have to pay where to you, it was just one hundred million, just one hundred million.
Yeah, exactly. So that's basically what happened in the sort of two thousands is all these countries got on board. The framework was sort of led by the US for the Heavily Indebted Poor Countries initiative from the World Bank and the IMF, and you know, it worked pretty good through the two thousands and twenty ten's for the most part.
It helped.
It did, and as a matter of fact, it was helped not just by that initiative. So that was a big deal, right, Like we shouldn't really breeze past it. It was a big deal. There was a lot of heart behind it, a lot of genuine like humanity from countries that held a lot of debt that just said, okay, we're going to forgive this for the greater good. But there was another thing that happened too, which was the global financial crisis of two thousand and seven and eight. Right, the big meltdown from the US housing market bubble. That actually, because the US FED was so interested in combating the effects of that and the recession that followed, they dropped interest rates like crazy to like basically zero, and so that meant that international lending rates were also really low too, which led to easy money. A lot of people could borrow money. There were a lot of rich countries that had lots of money to lend, and countries that wanted it could borrow it for really cheap. And it was so cheap you could borrow money to pay back the other money you just borrowed. It was kind of like that set up.
I was just leverntry at the time. Yeah, I did exactly that.
I got a stated in come loan for our first house by just walking in there and saying, we make this munch of money, and they went, sounds great. And we had a bunch of credit card debt and we rolled that into that loan because we had overborrowed for a lot of different reasons, not because we were just living the high life emily early because early business investment and stuff like that. But we rolled all that into one big thing, and so I can, like you can use the example of an individual, and it's kind of the same as these countries.
It's the exact same thing. It's all the same principles, it's even largely the same mechanisms with the same people involved as far as lenders go. It's just on a global scale or like a like an individual scale. But it's that's a great point. It's virtually the same thing. So with all of this easy money, people started racking up more and more and more debt because it seemed like the spigot was never going to turn off, which is always like, when you start thinking the spigot's never going to turn off, you should stop immediately.
Yeah, because that means that the spigot.
Turning off is right around the corner, and everybody's gonna get caught with the hot potato. And that's essentially what happened when COVID hit.
You're mixing metaphors in a great.
Way around the corner with the hot potato.
You know, spiggots and hot potatoes. And I don't know what's coming next.
There's probably some baseball metaphor or something. Okay, you know, you get caught with three loans and you're out. I'm I'm really I'm off my game, Chuck. I used to be so much better at this, and then you kids.
You're killing it.
I feel like it's evaporated a little bit, just temporarily, but a little bit.
No, No, you're crushing it.
Okay, Well, I say that we take a little break. I'm going to recollect myself. And we've reached the COVID pandemic having a huge impact on that debt, definitely large hous of each.
Sksh sks tough.
You should know. So COVID nineteen strikes, and all of a sudden, that money dries up because everybody needs money, and like all countries, lower income, middle income, high income countries are all borrowing money because business as usual has just stopped, right.
Yeah, I mean health care costs are going through the roof, business is going into the toilet, and trade has gone into the toilet, not completely, but for a large part. And so the world all of a sudden was thrust into a global financial crisis. And I love that Olivia even used your word. She used upshot.
I saw that it's wear enough.
The upshot, though, is now because of all this, they're all of these countries, not all of them but many of these countries that we've been talking about are in more debt than ever before. The debt burden of nations classified as developing nations went from two point one trillion in two thousand to four point one trillion in two thousand and nine to eleven point one in twenty twenty one.
That's crazy. And then like the external debt to gross national income ratio among those countries external debt is all the foreign held debt to their gross national income went from seventeen percent in twenty ten to forty eight point five percent twenty twenty one. Daggering number it is, and it's a really scary number too, especially if your country, like I need to feed my people and I need some money, and now it's the money's dried up because some of these wealthier countries are borrowing two and that that also means that they need the money that I already owe them, So they're not going to be very interested in forgiving debts right now, especially post COVID. So it put everybody in a really precarious situation that we're still in now. And it followed the same thing that happened in nineteen eighty two inflation happened, which meant that the value of the dollar went down and value of international currency went down, so it made it more expensive to pay your debts. And then also or you needed more money to pay the same amount. And then also as interest rates went up, that meant that it was unsustainable to service a debt, just like it was in nineteen eighty two. It just got too expensive. In countries now are doing the same thing. They're saying, I don't know what we can do to pay this, we need help.
Yeah, and a lot of it.
You know, when you break it down, it's really important to look at where this money's coming from, because it used to be a lot more like IMF multilateral sort of lending now. I think there was one estimate LIVA included that African countries about thirty five percent of their external debt to private creditors which have interest rates more along the lines of five percent twelve percent to Chinese creditors. They've China has really stepped in to fill a void, So just kind of keep your eye on that. At about two point seven percent, thirteen percent to other governments, in thirty nine percent to those multilateral institutions that we've been talking about at a rate of about one point five percent, so more money in private debt, less money and multilateral institutions. And if you're talking about two or three percentage points on hundreds of billions of dollars, that's a huge difference.
Yeah. And the reason you're like, well, why don't they just get it all from the IMF, Well, those private lenders they have high interest rates, but they don't come with strings attacked exactly raising taxes on your people and not spending on social programs anymore. If they're just using market conditions, right and saying, well, your country's this risky, so we're going to charge this interest rate on'll do it. Chic with it, right, But the IMF will say, we'll charge you a low interest rate, but you also have to completely restructure your economy to a way we say. So, there's pluses and minuses of both. But that those private lenders becoming bigger and bigger in the last couple decades is really distressing because the collectively private lending now rivals like the Paris Club as far as geo political global influence goes. And that's that's distressing to me. You might say, well, it's not like the Paris Club and other wealthy nations did a very good job when they were in control. They were still in some way, shape or form like subject to the to the people back home in their votes. Right, there's at least still nominally that with with you know, corporations, there's nothing but their shareholders. It's just it's different to me, and I'm not entirely comfortable with it. But the upshot is there's now private lenders that own entire chunks of whole nation's economies. Like there's a commodities group called Glencore. I think they're out of Switzerland. They own a third of Chad's national debt a third, and they they are very happy to give Chad that money because Chad has secured that debt with its natural resources. So if Chad can't pay its debt via money, glink Core says, just give us some crude oil, and they do very frequently.
How much of the national debt that they owe of karens.
I know, sorry, no, I like it. And I'm like, I'm surely saying Chad right right, it's not.
Shod or I think it's Chad.
I think that's what I've always heard too.
That's what I've always heard.
Because of the COVID pandemic, the Group of twenty, the G twenty organization basically said, you know, we can suspend some interest payments because of COVID, but that's a suspension of interest. It's not absolving any kind of debt at Also, it's just kind of like a temporary band aid, of course. And you know, basically where the point now where there is not any sort of straightforward, non case by case way to make restructuring a country's debt happen. It makes it really tough to sort of figure out an easy solution for sure.
And before, I mean it was convoluted enough when you just had like the IMF and the World Bank and the nation's funding them arguing over who did what or needs to do what. Now you have China who may or may not talk to you or come to the table if you ask them to. And then you have the private lenders who are like, hey, we're just in it for the money here, we don't want to do any kind of debt forgiveness. And because you've got all these different players all and all of them need to come together for debt cancelation to happen. It does make it much more difficult because if the private lenders just step back and say, yeah, United States, Paris Club, IMF, World Bank, you guys forgive a bunch of those debts down there in Africa, and then they'll have money to pay the debts for the stuff we lent them at the same rates that we lent it to before. So what you're essentially having on this global international finance scale are rich governments bailing out private lenders when their loans come under jeopardy to protect those corporate profits. And those governments that fund the IMF fund it with taxpayer money.
That's right, And the private lenders there's not much of a downside for them, is there.
No, not at all. They can just lend, lend, lend, and they know that eventually the IMF and the World Bank's going to bail these people out because there's softies and suckers who can't see some people starve at the in exchange for better access to some or diamonds.
Right exactly.
There's another way that debt has can be canceled out, and that's becoming more and more popular these days, although on a pretty small level. If you look at the big picture is debt relief for nature incentives, for natural incentives and conservation incentives. Basically groups coming in. Sometimes it's it's usually a private group, like and Belize the Nature Conservancy came in in twenty twenty one and said, and of course this is this is small beans in the big picture, but it's happening. And they said, hey, why don't you will reduce your external debt by about ten percent of your GDP in exchange, you got to put about four million bucks a year into marine conservation or another country might step up and say, hey, will help preserve this coral reef and put money toward that if you cancel some of our debt. Climate change, that's another you know, it's not necessarily colonialism how you might traditionally think of it, but there is an argument going around more and more that hey, these richer northern countries are the ones that are destroying the environment for the most part, and these poorer countries are the ones that are suffering and don't have the kind of money to help themselves like we do. So like that shit factor in as well.
Yeah, like if you see things like you do, colonialism can easily apply that to climate change too, Like, why should these countries who contributed almost nothing to climate change but are going to suffer for it have to pay for it themselves. That doesn't make any sense because of where they are. And then there's even worse than that, there's this terrible circular logic where those countries that are going to get hit the worst by climate change and need the most money to spend on bracing themselves for climate change are then the riskiest countries to lend to because they're most susceptible to climate change, so it costs them the most to borrow money to protect themselves against climate change. Yeah, that's the situation that we're in right now, and so a lot of people have kind of moved on from colonialism to Okay, this climate change thing is actually a real thing, and it's not the fault of the global South. It's the global norse responsibility to pay for the mess it created, and the global North is not necessarily on board with that at this time.
Yeah, and to kind of put a button on what I mentioned earlier about the R word, there's a historian at the University of West Indies, Hillary Beckles, who did some back of the envelope calculations. I'm sure it was more rigorous than that. I don't want to achieve in it. But basically said, in the Caribbean alone, Europeans got about two hundred years of free labor to the tune of about eight trillion dollars. So don't think of it again as a reparation. But it's like it's just, hey, we'll pay you for all that work that happened for two centuries. Basically, it's a long overdue bill and we're going to pay it now.
So if you think that eight trillion is eye popping, get this. There's a twenty twenty two study by some academics I think out of Austria and Spain, and they found that in the year twenty fifteen alone, the global North appropriated from the global South. You ready, twelve billion tons of raw materials, eight hundred and twenty two million hectares of land I think two hundred or twenty one exit jewels of electricity. Surely that's an enormous amount, right in three hundred and ninety two billion hours of labor. This is twenty fifteen only that was worth to the global North ten point eight trillion dollars between nineteen nineteen twenty fifteen, that total two hundred and forty two trillion dollars of wealth that was essentially extracted from the South by the North. And you say, well, hey, wait a minute, we're not using slave labor anymore. We're not just going in there at gunpoint and extracting those gems and those oil anymore. And no, it's true, but it's what I was talking about earlier. There's now trade inequality where we pay very cheap prices for the raw materials and then sell it much much higher prices back to the people we got those raw materials from. We don't give them a fair price for what this stuff we're taking from them is actually worth. And that's the problem, that's the current problem right now. And that's why a lot of people say, Okay, this stuff is so imbalanced. This debt to have to pay for being impoverished by the North doesn't make any sense, and we should cancel it. And I mean, I think it's pretty clear where I land on that, but there's plenty of other people who are like, look, man, I don't even feel good about paying on social spending in my own country right let alone another country, and those people are going to be very difficult to get on board, but it can happen. Bono did it before, he can do it again.
Yeah, And the only thing I'll say is, like, if you end up coming down on the other side of this, that's fine, if you've done the research and you understand the complications of world economies.
Like what you shouldn't do.
Though, is just think, oh, well, it's as easy as like everyone's on America's teat.
Right.
You know, it's more complicated than that. If you don't agree in the end, fine, but at least like do the heavy lifting of learning about it and then make up your mind and don't just take sort of the lazy way out. So you got anything else, I got nothing else, just a quick I made a Karen joke and a Chad joke. I love Karen's and Chads, and I think that is all so dumb, but real Karens and Chads have had a hard time with that stuff. And I didn't want to add to that. And I wasn't saying someone as being a Karen. I was just sort of a tangential joke. But I hope that didn't cause any harm or stress very nice.
Chuck. I think that that buttons this episode up quite nicely.
Stand by the joke. That was pretty good.
Since Chuck stands by his joke, that means, of course, the listener mail has been triggered.
Great great email about from Gwenn Creamines. I wish it was I would explain a lot about creamins and amusement parks. But just quickly, a couple of corrections we have heard, not corrections, but we have heard a loud and clear from the wolf packers that wolf pack is a Iver's ed term. It seemed like in a lot of different places in the United States, So.
I can't believe it. We've not heard from more people about a single thing in recent memory.
Yeah, a lot of wolf packers.
And also we got the I said something about the inventor of the segue writing off a cliff That was not the inventor. That was the at the time owner of the Segway company, man named Jimmy Hesseltin apparently, who.
Was a really really good guy.
Yeah.
So a bunch of people recommended this podcast episode February sixteen, twenty twenty three, episode called The Hero Who Rode his segue off a cliff, from the podcast Cautionary Tales with Tim Harford.
Haven't listened yet, but it sounds great.
Very nice. Yeah, I heard from our friend Van Nostrin about that, like almost immediately after the episode came out, that it wasn't him. We got it wrong.
Oh and also quickly, since we're talking about corrections, there's this great video on YouTube that explains the whole Fabio goose situation, and it was way more involved than I thought. Fabio claimed at the time it was not a goose and it was a piece of camera equipment because he had a camera on the front of that ride on opening day to film it, and that he tried to sue production company. Production company said it was not camera equipment, it was a duck or a goose or whatever.
So I don't know at the end of the day, if that ever really bore out.
Does it really matter what's true? If the internet thinks it's a duck.
Nobody wrote in about that, by the way, I found that just through investigation. Nice all right, finally, listener mail, Hey guys, my dad was a humorous guy, always telling jokes and pulling pranks. My mom and dad divorced when I was a teen, but they remained friends best friends. In fact, they just both agreed to go their separate ways romantically. Dad never remarried. For as long as I can remember, even when they were still married, his joke was that he wanted to be cremated and his ashes mixed in account of paint, and my mother's bedroom ceiling be repainted with that paint. This is a joke that lasted decades. He repeated it every time he had a chance to, with my mom rolling her eyes. My dad passed away in twenty ten. We planned a military honor service, had him cremated, and had a memorial service at the local veterans park. I purchased five Pewter tens, divided the cremaines for each of his children, and we had the service and presented the urns to my siblings. My mom approached afterward and asked if it would be possible for her to get some cremaines to put in an urn. At this point I reached in my pocket and pulled out a sample paint jar from home depot and handed it to her. Told her Dad wanted her to have this. Of course, I did give her a real urn with real cremaines. The paint was unaltered, but until the day of her passing in twenty seventeen, my dad's earned proudly rested atop this paint. Can on My mother's mantle is a tribute to the longest running joke in the family, fully executed.
Sweet that's great. That's from Zach Mitchell in Saint Louis.
Hats off to you, Zach. That was That was a good one, So thank you for writing in to tell us about it. And I'm putting my I HAVE back on so I can take it off to you one more time.
Absolutely sorry to hear about your parents, but that was a great way to honor your dad and for sure kind of have fun with your mom.
Well, if you want to be like Zach, can take us on a roller coaster ride of a motion where there may or may not be a duck that flies into our face. You can do so via email A's Stuff podcast at iHeartRadio dot com.
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