President Buhari

Living a false lifestyle of pretending to be rich!


Nigeria’s present debt level is really worrisome and alarming from whatever angle you look at it or the matrix applied to analyse it; and unless we accept the fact that it is bad to continue to borrow, we are likely to regret it in times to come, because no nation has gone that route without burning its fingers.

No justification is sufficient to excuse, accept or permit a bad or wrong action; it habitually indulging and addictive, and morally compromising. Debt is a pretentious lifestyle and a source of future grief for any person and society; and demands the consciousness and awareness of its debilitation to avoid permissiveness toward, as we have currently.

If contemporary global economic and financial history is any guide, Nigerians should rise up against the growing trend in our debt profile. No country has developed on the basis of foreign debt, especially as a source of investment. The first reason for this is that the public sector or government is not a good investor; this played out clearly under socialist system, and which is why China adopted capitalist model.

Second, debt is not meant for development purposes – not in modern history. Debt is usually for short term cash flow or revenue short fall issues caused by a certain unforeseen situations, such as war or natural disaster. So, the first problem is a mismatch between the debt and its purpose; and such discrepancy is the source of crisis.

Debt is bad because the moral book says so. According to it, the borrower is a slave to the lender, as long as the debt subsists; and the fate of some countries with China is evidence of this. This is a clear warning to discourage any compulsive disposition to debt and borrowing.

The challenge of human society today is the unreasonable tendency to ignore and disregard      divine and natural truth in preference to the foibles and idiosyncrasies of mere and finite mortals. And society constantly pays grievously for it.

 Why do men or society go into debt? There is both a theoretical and human reasons for it, and both are unsustainable argument for rational people. Historically, men and society had sought debt to solve urgently pressing issues that may be financially beyond the capacity of the borrower to handle or carry in the immediate circumstance. It could be sickness, death or natural disaster, such as fire, flood or earthquake etc.

For instance, when a loved one dies, especially one that may require huge burial expenditure, some sympathizers may come there strictly for business; to let the immediate family know that they could source for needed funds at a not too friendly or sympathetic interest rate to give the departed a befitting burial and avoid shame to the family.

Of course, it is alluring having to solve such financial challenge, and most are usually attracted to it; but it hardly ends well. Why? Because debt easily or sentimentally acquired is usually a trap. Easy and sentimental debt is one contracted for consumption and without rigorous analysis and a clear repayment plan.

This is the most difficult debt to repay, because debt is a task on future income and unless such income is well defined and sustainable over the period of repaying the debt, it will lead to heartbreak. This explains why financial institutions ensure that their lending is tied to sufficiently bankable proposal and repayment options, and not just on collateral.

Financial institutions are never interested in taking over any collateral assets in the case of repayment default. It is both a management and financial liability to the banks as it requires legal and administrative fees to repossess. Banks are only interested in the sustainable capacity to repay. Repossession is a worst case scenario when everything has failed to ensure repayment.

However, the contemporary popularity of debt is unrelated to such calamitous personal or social tragedies but a product of human lustful desires, social indiscipline and wrong priority. Wise people and societies avoid debt like a plague because debt leads to sorrow, and a road strewn with thongs and difficult to determine; it may seem good in the immediate situation but the end may be destruction.

The popularity of debt, especially as a public policy instrument, is based on consumerism; the deception of living a lifestyle of pretending to be rich when actually the person or society is poor. It derives from the Keynesian economic theory that a progressively greater consumption of goods is beneficial.

It is the foundation of demand economics, where the government strives constantly to ensure and promote demand to boost the economy. It is the rationale for quantitative easing, or what the 2006 Nobel laureate, Paul Krugman, called Depression Economics, in reference to the Great Depression of 1929.

Now, you can see the connection between government interventions through the Central Banks and the allure and quest for debt. It depends on a constant sparking of our desires to buy things, anything for the good life, and does not encourage the discipline of deferred gratification.

The strategy is to keep and maintain a beautiful appearance and facade of normalcy to disguise the turbulence beneath. In the expression of Jesus, it is a whitewashed sepulcher that is full of men’s rotten bones. Since the New Deal policy initiated by FDR at the intellectual instigation of Maynard Keynes debt has become a beautiful bride and opium of society, which has lost its peace and freedom.

Virtually all the financial crises that had bedeviled global economy since then are traceable directly to debt and leverage. When a society is debt dependent, like the U.S. – and as we are approaching – it becomes overly prone to crisis and loses control of its economic destiny.

The U.S. is the highest indebted country in the world with about $2 trillion, and the challenges are already evident for the world’s largest economy. Its economy is massively productive and hugely export oriented, but it is also paying humongous price for its unbridled appetite for conspicuous consumption which is driving its debt acquisition.

Compared with China, which is its highest creditor nation with almost $1.2 trillion, the U.S. is in deep economic trouble. Unlike U.S., China did not borrow to finance its growth; but instead encouraged saving. It was from such savings, especially by citizens, that it invested in its growth and is lending to countries such as Nigeria.

Because China promoted savings culture rather than consumption, it had a pool of domestic funds to borrow and invest. However, in Nigeria where such pool of funds was available like in the different pension funds, it was roundly stolen by public officers appointed by government to manage them.

Again, the attraction of debt is based on two misleading notions, namely, that debt would help the economy by promoting investment in critical areas of need; and that sovereigns do not go bankrupt. However, these beliefs preclude the fundamental underlining assumptions that usually vitiate their validity. The theory of debt, as other economic concepts, is primarily premised on all things being equal, which never is.

At the micro economic management level, these assumptions may be validly defended, given the strict management control and narrow social intervention in applying the debt principle. Any person or company that has gone through a period of debt repayment would tell you it is the most stressful and demanding time, where you have to deny yourself the basic and simplest comfort in life, a default is calamitous.

However, debt is a leverage that can propel a business or person to greater heights if carefully managed. Even at that micro level, a significant percentage of debts still go bad.

Herein, is the catch: No government can or has been able to achieve such level of discipline, commitment and dedication obtainable at the micro-economic level. Most governments lack the discipline and personal obligation of leadership to guarantee its success because governments come and go; and the government that contracts the debt will not be the one to repay it.

In the final analysis, government debts are never well invested and managed. And no country has actually developed through external borrowing; it is a theoretical leap from the micro level that has little semblance in history and reality.

Any country that had gone into debt over a period of time usually came worse off. Zambia, Sri Lanka, Argentina, Mexico, Brazil, Greece, Spain, Portugal, Italy etc are all current example. Foreign debt is not an investment option; rather it should be a cash flow management stop gap. Any one relying on debt for investment will go a-sorrowing.