Global debt markets and how they affect the economy : can debt be used to enslave nations?

Abstract

This research investigates how global debt markets operate and how they affect the economy, with the intention of determining vulnerabilities with quantitative easing and its relation to repo markets and their global structure. It also discusses the causes of financialization of industry with asset stripping and stock buyback programs. Global liquidity’s relation to debt markets, how tensions with USA and China are affecting the demand for US dollars, the global reserve currency, as collateral and comparing the present system with the gold standard established at Bretton Woods in 1944. Findings indicate that mismatches resulted from global liquidity markets have tendencies to escalated to financial recessions which are stabilized by implementing austerity programs. Stock buyback programs have dramatically increased in recent years due to financialization of industry were short term share value is in general pursued instead of expanding operations which is an indicator of declining output and employment. The financial system is therefore, refinancing its existing capital instead of raising new capital. Furthermore, this research determines if debt can be used to enslave nations, using Latvia and Greece as examples. Ultimately, it can be concluded that debt can be used to enslave nations when privatization programs are implemented to stabilize indebted countries, since these programs leads to financial austerity despite that there are checks and balances that can be used along with debt write downs to counter destructive austerity programs.