intermission - world finances

I know next to nothing about finances. I usually figure if I have enough money in the bank to pay my bills - I am doing OK. Anything more than that is usually beyond me. But I have made a special attempt to understand what in heaven’s name is happening in Europe. This is the best I can come up with.

If I want to buy something but don’t have the cash on hand – I go to the bank and borrow some money (well actually I don’t do that – but I know lots of folks who do). The bank tells me how much it will cost me to borrow the money, I agree and we all sign a pile of forms. If I lose my job or for some other reason I can’t pay what I owe, then either I can declare bankruptcy or perhaps the bank and I negotiate a different payment scheme.  But what the bank does not do is raise the cost of borrowing the money!

But that is what I think is happening in Greece and Italy. They need to borrow money to run their country. You can’t build a hospital or repair the roads without borrowing money. Because of the economic downturn many countries are having a difficult time raising funds through taxes. The people are earning less and therefore there is less money in the system. But banks, rather than negotiating with the countries to reduce their payments, are raising the interest rates and thereby making it harder for the countries to do business. When, because of the rising interest payments, the countries can no longer manage their economy, then there is a major crisis.

In other words while there is a small financial crisis in terms of the various lending institutions not getting their money (and of course their huge profits) back as soon as they had planned, the crisis is made far worse by those same financial institutions raising the cost of borrowing the money. In other words they are creating the crisis.

Please someone – tell me this is not true!!!