Is The Global Economy Rigged?

Although the Republican Presidential primary has now effectively concluded with the presumptive nomination of Donald Trump, the Democratic Party is still witnessing a slugfest between Hillary Clinton and Bernie Sanders. And for Sanders, that means a continuing stream of opportunities to declare that the global economy is rigged in favor of the international banks.

But is that true? Is the entire global system of governmental regulation designed to protect big lenders? And to beat up on small borrowers?

Last week, mixed evidence emerged from the European Union’s PIGS economies (of Portugal, Ireland, Greece, and Spain) in regards to this question. Although the Greek federal government received support for negotiating favorable terms on its borrowings, individual debtors on the Iberian peninsula fared more poorly.

So what of Greece? Well, the International Monetary Fund (IMF) decided to advocate for a very lenient restructuring of its federal debt. According to the IMF, Greek repayments should be delayed until the year 2040, and should then be stretched out until the year 2080.

2040 to 2080? Under such an agreement, debt repayments wouldn’t even begin for the next 24 years, and wouldn’t end for another 64 years. In a world where a 30 year property mortgage is considered a long term loan, a debt amortization schedule of 64 years would be extremely favorable to any borrower.

Meanwhile, individual Spanish and Portuguese borrowers are pushing hard to force banks to pay them interest on their mortgage loans. Because variable interest rates have dropped below zero in those nations, these borrowers are arguing that interest payments should flow from lenders to borrowers, instead of the customary reverse direction.

And how are their governmental officials reacting to their demands? Not very favorably. Although banks in Denmark have begun paying interest to their borrowers under similar circumstances, government officials in Spain and Portugal are asserting that no mortgage rate should ever fall below zero. In other words, even when commonly accepted market indicators of interest fall into the negative range, the officials are declaring that lenders should never pay interest to borrowers.

Thus, on the one hand, a relatively small debtor nation like Greece can now look forward to some relief from the global banks. But on the other hand, tiny, individual borrowers in small nations like Spain and Portugal are being treated differently.

So is the international banking system rigged against the proverbial little guy? In Europe, apparently, the answer appears to depend on the relative size of the little guy. Small nations like Greece often borrow relatively large amounts of money; they appear to be enjoying some protection.

But individual mortgage borrowers? No such luck. As noted by Bernie Sanders, the system may indeed be arrayed, if not rigged, against them.