Let me start by acknowledging that we are in a fucked up situation as a country. The debt situation is not looking pretty. I can complain about the misdeeds of the former governments, but I don’t think that does anything to alleviate the current situation. It’s spilt water. And I would not like to be in the shoes of the decision makers at this point in time. But I want to address something that I don’t think is being captured by the mainstream media and conversations happening around the topic. But to do this, I have to provide context first.
Show Me The Money!
There are two sources of money for the government. The first is its people. It’s the taxes we pay on our incomes. It’s the taxes added on top of the things they buy. Its the licenses its people pay to set up and operate their business. So on and so forth. The biggest source of cash for the government is its people. The second is debt. The world runs on debt. A lot of you right now have some debt you’re paying off (or not). Its impossible for most people to survive without debt. And quite honestly, its impossible to get rid of debt. If we even try to do so, the entire world economy would collapse. There is a third avenue for the government to get money. That is by doing business with its people. But the cash generated from this is usually negative. Governments are not built to be efficient. And whenever they enter a business, they usually end up losing money. They don’t have shareholders breathing down their necks, firing them on a whim for incompetence. So, the people and debt. Those are the major sources of government revenue.
Where’s My Money, Brian?
We have been complaining about the debt side for a while now. Frankly, our creditors have too. Kenya is close to what we call ‘junk status’ with regards to debt. That means we are high risk to any person, business or institution that wants to do any business with us. What that means is that they will only offer cash to us if we reward the high risk with high returns (read high interest rates). In the case of world financing bodies, they only do this if we meet certain criteria that ensure they can get their money back. High interest rates only serves to push us more into the debt spiral. But asking the government to curb the debt side means one thing and one thing only. The government turns to its only other source of cash. It’s people. We have been complaining about the debt levels for a while now. Well, the solution is that you get hurt for a while.
Downgrading
Now here’s the thing. Whenever you have an institution in a hard financial situation, there’s usually three immediate options available. Let’s tackle the first - cutting expenses. Downgrading. The thing about human nature is that no one likes downgrading. No one. People would rather suffer and survive than downgrade and thrive. It’s in the stories you hear of people eating sukuma wiki for a week so that the car can be fueled. And the truth is, if the government has been taking this option, and people have not been liking it. At all. For the government, cutting expenses means reducing the amount of bloat it has - of which it is highly bloated. The easiest way is to cut all the subsidization efforts it has made in the past. Subsidies are expensive, and cutting them reduces the burden, while encouraging for free market economics to take reign. And industry can never really become competitive if it relies on support. The consequence of that is that fuel prices go up, taking everything else up with it.
More Money Baby
The second way to do that is by raising revenues. And the main source of revenues as we’ve discussed above, is through taxes. The truth is that the bulk of taxes comes from the people who, for the most part, will be fine even with higher taxes - the middle class. They’re the ones who are salaried, who drive the millions of cars on the road, who buy the bulk of the stuff in supermarkets, who go out drinking every weekend. They generally have disposable income. They will be forced to cut back a little. Eat less. Buy less. Do less of everything. But they’ll mostly be fine. And the smart ones will probably negotiate their salaries higher to maintain their lifestyles. Or they’ll steal, if all else fails. And the thing about the middle class is, unless you hurt them really bad, there’s no need to worry about them. They’ll complain in their cars, in their nice houses. But they rarely DO anything. They have better things to do than demonstrate. Case in point, the changes that came due to the discourse on the cost of living didn’t come because the middle class did anything in particular. Its because the poor went out to the streets. Caused chaos. Shouted at the top of their lungs until they were heard. 90% of the middle class went to work as usual and followed the events on twitter and the news.
There are two other options available. That is cutting jobs, and eliminating corruption. I don’t see a scenario where the government cuts jobs. If it did that, it would be the first government in history to take that option. And government employees would cause a huge amount of chaos if that happened. So while it would be awesome, it ain’t happening. As for corruption, let me make it simple. So long as we, the people, are okay with giving out that 500 whenever we get caught in an offense, corruption’s not going anywhere.
Bad Religion
Here’s something I know you won’t like hearing. The financial sector is the biggest religion in the world. It operates on faith. It’s the one thing that everyone places their faith in. Whether Christian, Muslim, Hindu or Atheist, there’s one thing we can all agree on. Paper. And it is paper. Literally. It only has value so long as someone else is willing to receive it as compensation. There isn’t enough gold to back up the financial system. There’s over 5 times in debt as there is actual money. Banks only keep around 10% of customer deposits. So long as we believe debt will be paid, so long as people are willing to accept the paper in our pockets and the numbers on our phones as money, and so long as no more than 10% of us demand all our money from banks, then the financial system remains sound. Once that faith is broken, the house of cards comes crumbling down fast.
Defaulting on debts, sovereign debts, for me, is simply not an option. It breaks that faith. And the consequences of that are far more painful than higher food and fuel prices. If we even come close to that, the demand for our currency drops off a cliff. No one will want to touch us with a ten foot stick. And you know what the consequences of that are? Look at any country that has defaulted on its debts. We import all of our fuel. If our currency depreciates, the fuel prices will shoot. We import most of our food. From wheat to cooking oil to fucking eggs. Heck, the freaking cooking gas we use to cook our food is imported. You know what happens when our currency becomes a whole lot weaker? All these things get a lot more expensive. Defaulting on debt is a nuclear bomb on a country. Greece is yet to recover. Zimbabwe have paper notes for a million. A million. Defaulting on debt is not a fucking option. I’d rather hurt the people a little bit.