Countries that Borrow Money Are Slaves to the Lender

The Bible says that "The rich ruleth over the poor, and the borrower is servant to the lender." (Proverbs 22:7). Personal finance gurus like Dave Ramsey have been using that verse for years to try to convince individuals to get out of debt, but that verse works for countries too. The United States' relationship with China is illustrative of this fact. While the US is beginning to see the consequences of borrowing too much money now, there have been other countries in the past that have had to pay the consequences of owing too much money to other countries. While individuals that owe money may end up having their homes foreclosed upon, countries also lose out when they can't pay their bills.

Germany after World War I

Germany financed much of World War I through debt, then when they lost the war, they were forced to pay reparations. The country was financially depleted and could not meet its financial obligations. Their gold reserves were very small, and other countries stopped buying their treasury bonds. In addition, some of their most productive areas were taken away from them as part of the peace terms from the war. France decided to get some of their money back by invading the Ruhr region of Germany in order to take their coal output. To make matters worse, the workers in the Ruhr region went on strike, and Germany printed money to pay for them to sit idle as a way to resist the occupation. This led to massive hyperinflation in 1923. Many people lost their fortunes, and some people even starved to death.

Britain after World War I

In the 1800s, Britain was the world's superpower. It held possessions all around the globe, including India, Australia, Canada, and various islands. They ended up borrowing money to fight a series of military actions, including fighting in World War I. During World War I, they ended up borrowing quite a bit of money from the United States. After the war, the United States gained in prominence, while Britain was now a debtor nation. Because the United States was the economic leader, they were better able to dictate the terms of peace.

France During the Reign of King Louis XVI

In the 1780s, France was beginning to go bankrupt. The country had been squandering money ever since the days when Louis XIV held lavish parties, built the palace at Versailles, and encouraged all the other nobles to join with him in indebtedness. The money spent during the Seven Years War and assisting the United States during the American Revolution didn't help either. The banks in Western Europe knew that France was running out of money, and they would have to raise more money in order to pay for the government and pay their debts. Louis XVI suggested that the noblemen pay taxes, and they refused! The peasants were already heavily taxed and nearly starving, and could not afford to pay any more. The French people became interested in revolution, and the resulting French Revolution cost the heads of Louis XVI, his wife, and thousands of other people.

The United States might think that it can rack up unimaginable amounts of debts year after year, but eventually, all debts must be paid. Unsustainable deficits will have to be reined in. Spending will have to be cut. China, and all the other countries that the US owes money to, will not allow excess spending to go on forever. Sooner, rather than later, they will dictate the terms of repayment, and the United States might not like it.

Sources:

Bauer, Susan Wise: Story of the World Volume 3. Peace Hill Press, 2008. pp. 129-133, 239-246.

Ferguson, Adam. When Money Dies.

Glenn Beck Program, 14 January 2011.

Wikipedia. Aftermath of World War I. Accessed 19 January 2011.

Wikipedia. French Revolution. Accessed 19 January 2011.

Wikipedia. Weimar Hyperinflation. Accessed 19 January 2011.