Debt -- it is perhaps as old as TIME itself. One imagines that it goes back at least to the time of "STONE AGE MAN" -- when a Mammoth was killed and guests were invited to dinner. At the entrance to the cave, as his guests were leaving and "goodbye's" were being said, the host called after them; "YOU OWE ME!" Perhaps it was even further back in time than that. We will never know. But it has been with us for a long, long time.

It is tightly woven into the fabric of life itself, and whether we wanted to or not, perhaps impossible to eradicate. And if we ever attempted to pull the thread from the fabric--economic life as we know it would unravel, never to be the same again. It fueled the discoveries of Columbus, Bartholomew Diaz, Vasco de Gama and Captain Cook. It conquered the North and South Poles and Everest. And it built the Suez and Panama Canals. It opened the West to the wagon trains and the railroad. And modern society is mired in it! It has three faces. The GOOD--THE BAD and THE UGLY. It is also one of those--you know, "four letter words!"

It affects individuals, companies and governments. Both Provincial and Federal. It oils the wheels of International trade, fuels the prices on Stock Markets. And Enslaves Peoples Worldwide. While we will pass comment on the individual aspects from time-to-time, our primary concern will be with Company, Government and International Debt. The act of debt, or should one say the creation of debt, is reliant upon the offer of Credit. They are synonymous to each other. You cannot have the one without the other. So in reality Credit creates Debt. While debt exerts such an influence on one's life, it is remarkable that the dictionary devotes nearly a half column to the explanation of Credit--while debt is described in two very short phrases as follows: "That which one owes," and "An obligation." Credit is defined, among others, as "The time extended for the payment of a liability."--"Transfer of property on promise of future payment," and "Trust in repayment of a debt." If one were to term "modern society" as encompassing the 19th. and 20th. centuries, then individual debt perhaps started primarily with mortgages on property and the acceptance of "cheques" or "checks" as either payment for goods and services--or as long term repayment of a "bond" or "mortgage on a property. In this sense, we are primarily concerned with the overall concept of the type of debt incurred by the "average" person, not that of someone who has "facilities available" as a "credit line" from a bank. That is perhaps not quite what we meant; but it refers to a time before the advent of "plastic money"--the credit line given to countless millions of people as an incentive "to spend money."Cheques"--or spelt any other way, was on average an accepted means of payment for "short term debt." Until such time as the cheque could be "cleared for payment." In other words--it was an accepted means of payment--other than cash. However, although one had maybe a few days credit before the cheque was cleared, cash to meet payment had to be in the bank--or institution; or else "a line of credit" had to be in place. Thus cheques were in reality the first" CONVENIENCE CARD" available to obviate the carrying of cash to make a payment.

The onset of a widespread credit facility started commercially when companies extended 30/60/90/120 days and more time within which payment had to be made. Today a year or more before payment is to be made is not uncommon. However within these extended periods a hidden cost was the extent of the interest being charged on the outstanding value. Thus Department Store Credit Cards can charge interest up to as much as 26% or more! The standard Credit Cards used worldwide usually have a disclosed interest charge in the region of 18.5% annually, or a daily charge over .5% per day on unpaid balances left. In order to give one the INCENTIVE not to pay the FULL AMOUNT--one is "asked" to pay 5% -- or as little as 2.5% of the monthly total, so as to leave as much as possible to incur interest charges. Today, banks rely on this income to create the major portion of their annual profits. In order to better understand the volume of debt created by credit cards, a recent figure given, stated that OVER 700 MILLION credit cards are in issue in the UNITED STATES. Thus with a population of 270 million people minus 1/3rd (90 million) minors too young to have cards, we are left with 180 million. Deduct 30 million who do not have cards ( for creditworthiness or other reason) and we are left with 150 million people carrying 700 million cards--nearly an average of 5 per person! Thus at a credit limit of a $1000 on each card, $5000 is available to each person and at $2000 per card facility, the total is $10,000 per person. Such is the MONTHLY EXTENT to which credit cards can create debt. We will return to other debt creating factors for individuals at a later stage.

The primary difference between individual and company debt is the degree of responsibility imposed. Individual debt affects either one person, or additionally his family. Private company debt, while possibly the responsibility of one or more partners, impacts as well on all those people in the company's employment. Their jobs are on the line, should the company's debt prove troublesome. Public companies debt spreads the possible effect even wider. Not only are there more jobs at risk, but a larger amount of creditors are usually at risk for a greater amount of money. Finally, millions of shareholders are at risk in losing a major or total portion of their investment in the company due to debt. While debt has it's "Good Side" in generating the consumption of goods and services and enabling people to own cars and homes, it also has a "Bad Side" when excessive debt is extended to both individuals and companies. While one abhors the amount of credit extended to individuals into areas far beyond their means of repayment, it's impact on society in general is limited. However this does not apply in the case of both private and public companies, especially when one gets into the area of Mega Companies and Mega-Mergers between Mega Companies.

Bank Managers, Company Directors, their accountants and Auditors would perhaps all differ in their interpretation as to the "Comfort Zone" level at which a company can "tolerate" a given amount of debt. Contrary to what any Bank Manager might tell you about any laid-down formula or "guide-lines" set by Head Office, invariably when "the chips are down" and they are faced with non-performing debt, these so-called formula and guide-lines were never adhered to, but were greatly exceeded by "someone yielding discretionary decision" at Head Office--or wherever. While it may slow down job growth and the expansion of GDP, the unrestrained and explosive availability of credit creates the greater danger to society. In-so-far as companies are concerned, "discretionary income" BEFORE servicing interest and repayment of debt is a very narrow band inside of--and dependant on Cash Flow. What one would like to see is some sort formula used which relates to the difference between Net Asset Value and totally allowable debt. This should either be part of Company Law, or be laid down as rules binding on Auditing function. This should never be at the discretion of a Board of Directors. In other words, the limitation of debt is to primarily protect shareholders and as an end result, creditors as well. Too many companies either are going into liquidation or applying for creditor protection due to their inability to finance debt.

What has been said in the previous paragraph, is even more relevant to those companies who contemplate a merger. If both parties to a merger are carrying a debt load; why should the shareholders of either or both companies now be exposed to additional debt. It is all very well to say that the additional assets created are sufficient compensation to carry the extra debt load, but the percentage difference between Total  Asset Values and debt may have been materially altered. Cash flow factors will certainly have a different bearing on Costs--Net Income and profit margins. To prove this point:- Why is it that without fail all mergers state that costs will be reduced by dispensing with labor and reducing other costs by various means? There should be a definite ruling, or be part of Company Law that where both parties have a debt load, it be required that one of these debts be repaid at merger. Thus shareholders would be assured that their interests are being taken into account and protected. When it comes to the MEGA-MERGER scene, this is even of greater importance. The sheer value of a Mega-Merger presupposes that extra debt will be incurred in order to consummate the deal. When mergers are valued as being in the 40 / 50 / 60 Billion Dollar range or more, it must be apparent that neither party has the cash resources available to conclude a deal of this magnitude. While it may be understood that these figures quoted are either the total present Market Values of the shares of these companies--or even at times the total of their Net Asset Values, somewhere within the merger there may be a provision for the borrowing of additional finance required to consummate the marriage. And it is when this forms part of the deal, that that we are concerned with. When one is faced with "Mega-Buck" mergers of this nature, it should surely be of major concern to "Government" that the rights of shareholders be adequately protected. Here particularly it should have a definite provision for either the elimination of the total debt of the one party or at least a substantial reduction in debt of one or both parties. While on the subject of Mergers; one wonders why any cognizance at all is placed upon "Market Price" values of the shares of companies participating in a merger. It has NO BEARING WHAT-SO-EVER on the value of a company or it's assets.

Perhaps it is now time to turn to "Government" and " State" ( or Provincial) debt. One should divide debt as it applies to these entities, as either "good debt" or "bad debt." Good debt is that which is self sustaining and repayable. For several examples of these we offer the following. A bond issue to build a dam or reservoir together with its perhaps water purification plant and reticulation system. Provided interest and redemption costs and maintenance costs are spread over the expected life of the reservoir, and recouped via income derived from the sale of the water, this is "good debt." The same would apply in the case of electricity generation and sale; as would a toll road or toll bridge. Bad debt would apply to the same examples, were they to be repaid from the imposition of additional taxes. Where debt is required to be generated to pay for an entity that can be financed in repayment by means of the sale of its commodity or service, it would be the ideal vehicle for the flotation of a "foreign loan" or bond raised externally. In other words foreign debt should be limited to the expenditure on "capital works" which generates its own income to repay the debt. In other words "good debt" is harmless debt. However bad debt is a canker or a cancer which eats into the very fabric of society and in the end starts to destroy the social structures set up to enhance the lives of a country's citizens.

Debt creation , be it from deficit expenditures in annual budgets or the flotation of bonds either domestically or overseas to finance these expenditures, invariably results in greater taxation to repay debt. This eventually becomes self perpetuating in that less and less money is available from taxation to pay for the basic needs of society. In other words, if 10% of tax revenue has to go towards the financing of debt, it leaves only 90% of revenue to be available for all else. When debt financing starts to take 20 / 30 /40 % of tax revenue--a country is already in big trouble. The first thing that starts to happen is an inexorable never-ending increase in taxation to fill the gap created by revenue having to be found to replace that spent on debt financing. The second impact is a flight of capital and citizenry from the country to escape the higher taxation--resulting in lower tax collections--and more taxes imposed as a result. Another result is a perceived loss in the value of the currency--resulting in the currencies inevitable drop in foreign exchange value--by which time foreigners have been offloading their bond holdings in that country. Finally due to this last factor, interest rates start to rise to entice investment and as a result the economy starts to slow down. While all this is starting to happen--less after tax money is available do drive the economy and the growth in the economy and G.D.P. has taken its toll. Long before this stage has been reached, the government, both at the "state or provincial " and the federal level have had to severely cut back on expenditures in health, education and social spending and other vital areas which affects and impacts on the life of it's citizens. This all has been a result of "bad debt."

While "balance of payments" deficits are not directly the fault of "government"--except where government has added to it by overseas purchasing of requirements, instead of domestic procurement, its resultant deficit between imports and exports has to be paid for in foreign currencies. And the government has to provide the money to pay for the shortfall. While this cannot be construed as "debt", it never-the- less becomes a drain on foreign exchange held in reserves, or replaced to reserves , which eventually leads to either the issue of govt. bonds or the increase in taxation to compensate for this . In other words the creation of additional debt. While on the subject of debt and taxation, one would hopefully like to see some of the following take place one day. All taxes, or at least most taxes should be "perceived taxation." In other words, if gasoline is taxed to pay for roads and highways--or to subsidize public transport, it should be "accounted For." In other words in the annual budget accounts, the income and expenditures should be reflected and where income has exceeded expenditures, it should be allocated to specific reserves, or the tax on that item should be lowered. Where expenditures have exceeded income, that specific tax should either be increased--or the following years estimated expenditures should be curtailed until such time as the taxed income and expenditures are in balance. This is budget discipline-- and it should always apply. If a National Health Scheme is in place--taxation to pay for it should be specified--not be paid for out of general revenue. As an example of this, we offer the following figures. In the United States of America where citizens purchase Health Insurance Policies at an average cost of say $350 per month, the health system works well and efficiently and is of a very high standard. While the cost still generates a profit to the insurer, the citizen is getting fast and excellent treatment in return. What is important, is that the perceived treatment is directly attributable to the cost of purchase. In other words "you get what you pays for." In Canada under its National Health Scheme, an entire family is covered  for hospital and doctor charges at a monthly cost of $69 per month. The actual cost per family is approx. $300 per month, the balance is made up by either provincial or state (govt.) revenues from general taxes. In other words the Canadian PERCEIVES his taxes to be higher, and his health system to be less efficient in service and quality to that of the American citizen.

At the beginning of this article we said that there were three faces to debt-- the good; the bad ; and the ugly. Having dealt with the first two, it is now time to discuss "the ugly." This has been left to describe INTERNATIONAL DEBT. It may seem strange to decry money lent to countries to enable them to overcome their monetary problems. One has little problem with the concept. It is with the method employed and the sometimes underlying or hidden agenda and "the strings attached" that one takes issue with. There are a large number of issues that will be addressed in this respect. Let us start with interest rates. If one is genuinely compassionate; one either gives money as an outright grant, or as a soft loan at a minor interest rate, repayable over an extended period of time in easy installments. Not so with the International Monetary Fund. Grants are practically unheard of. Interest rates are at "the ruling rate" at the time, and repayments by no means "extended." What is even more abhorrent, is the strict rules that have to be adhered to before a loan is granted. Why should a country in financial difficulty have to devalue its currency, either by a definite percentage, or by a free float of its currency? Surely it is easier to make repayment at the exchange rate ruling at the time, than to have to purchase foreign currency at a very punitive rate demanded. Why is the interest rate not say 2% or a max. of 3%? Other onerous demands are made before the loan is agreed to. In a number of cases in countries where the banks are primarily at fault for making ill-conceived domestic and international loans, an underlying reason for advancing a loan is not directed at GOVT. to allow for re-structuring bank loans, but whose primary reason is to ensure that international bank loans owed to banks situated within the Primary Countries who control the International Monetary Fund are repaid. Many of the smaller countries and impoverished 3rd. World nations are locked into debt to the Monetary Fund, with little or no hope of ever getting out of debt. What is required is the "forgiveness of debt" in total value to those countries who are recognized as being unable to repay their debt. In the case of countries that are capable of making repayment, but find it difficult or onerous to do so, debts should be rescheduled at an interest rate of 2%-- repayable over 10 / 15 years. Alternatively existing debt should be "forgiven" in stages, such as " forgive 10%--pay interest on 90%. The following year, "forgive" another 10%--pay interest on 80% and the following year another 10% and interest on 70% and so on until the total has been accounted for. New guidelines and rules need to be applied to the issue of International loans, and finally a number of smaller nations should be allowed to sit on the board of the International Monetary Fund.

Before concluding this article, we would like to comment on private or individual debt once more. Figures released at the end of January ( yr.2000) state that shares bought "on margin" on the U.S. stock markets increased from $140 Billion in 1998--to $228 Billion IN 1999!!, an increase of 62% from one year to the next. This is disturbing news. Imagine how many individual lives would be ruined if and when stock markets start to collapse as they are destined to do one day. Add in the folly of those stockbrokers who are carrying the debt, to complete a nasty scenario. Recently published figures also state that in 1999 personal debt in the United States increased by a greater percentage than did the growth in G.D.P. Not a good sign. In other words the strong economy is not being fueled by any increase in earned income--but by an increase in debt spending. Thus if and when a slowdown in economic growth occurs, those in debt will find it either difficult or impossible to service this higher debt, especially if they are recently "retrenched labor." At the same time it has been said that individual after-tax savings in 1999 has dropped to 1.4%. In other words everyone is spending like mad, increasing their debt--and saving "peanuts!" What of a livable pension in the future? What will happen when one or both breadwinners lose their jobs. Even while the U.S. economy is booming--people are losing their jobs. We do NOT LIKE what we see in the present situation.