Any time I sit down to read anything related with economics or finance, and perhaps accounting, I am prepared to be transported to a universe built upon theories allergic to the real world and ideas that mere mortals just cannot comprehend. Why did I include accounting in this set of subjects? Well because I have realized that over time my profession has complicated accounting to a point where the users of financial statements, for whose protection and understanding the entire standards and accounting framework was originally conceived, are absolutely incapable of comprehending the ABC of what the Annual Accounts of any corporation assert. And believe me when I tell you that some of these accounting concepts would befuddle Einstein.

Nonetheless, rarely does a publication from the above genre actually invoke science fiction themes from novels to explain a doomsday scenario. Over time there have been professionals who have warned the world at large of impending economic crises, all of which admonishing have always been ignored, since they interfered with the party mood at the time; and when the chickens did come home to roost, those opposing professionals and ideas were still ignored because publicising them was generally deemed to be detrimental to national interest. Albeit, there are those who believe, perhaps conspiratorial theorists, that dissemination of opposition to conventional economic wisdom is perhaps in the best interest of the populace at large. The bigger problem here is that, even if such contrarian debate caught the camera eye, trying to fathom economics, finance and accounting are synonymous with death by boredom for the layman.

So hats off to James Rickards (JR)! The first chapter of his book, "The Road to ruin" published in 2016, which by the way goes with a rather unimaginative moniker "This is the End", was definitely an interesting read; looking back it might even be a suitable plot for "Die Hard 5". JR analogizes his doomsday scenario, built upon a spiraling financial crisis, which has a domino effect on the world economies, with a substance called ice-nine from Kurt Vonnegut's 1963 novel "Cat's Cradle". The hypothetical ice-nine substance is a polymorph of water which is frozen at room temperature and turns any water molecule it comes in contact with into ice-nine; so if ice-nine were to be released in a large body of water, the entire water supply on earth will be frozen and all life on earth would cease; this could be a great plot for 007!

JRs ice-nine analogy is that with an executive order and a few phone calls, the stock exchange can be closed, ATMs shut down, money market funds frozen, negative interest rates imposed and cash denied, all within minutes; a complete freezing of money, "Your money may be like a jewel in a glass case at Cartier; you can see it but not touch it". Without getting into historical precedents, we all know that "They" can do whatever they want all over the world, and that "We", all the fanfare about democracy aside, can do absolutely nothing to protect ourselves from their wickedness. Freezing money and deposits aside, we know that the powers that be can simply empty our accounts and lockers, or even destroy all our hard earned cash under a fancy jargon called demonetization. I however don't agree with JR that there will be blood in the streets because of widespread money riots; the masses have been brainwashed into submission, they have learnt to kneel only.

Notwithstanding the lighter side above, JRs reasons to believe, that ice-nine, freezing of all kinds of monetary assets, is inevitable; will obviously be incomprehensible to the laymen, who will most likely take happy refuge in the fact that nothing has happened since 2016. And while JR writes purely in American context, a particular assertion in the chapter is undeniable; the impact of excessive debt on the world economy is poisonous.

According to a web search: "According to figures from the Institute of International Finance (IIF), global levels of debt held by households, governments, financials and non-financial corporates jumped by over $US70 trillion in the past decade to a record high of $US215 trillion, equating to 325% of global GDP". I am not sure who all that debt is payable too, and how is there so much money in the world in the first place, but clearly the world cannot pay all this debt, especially with acrimonious, to put it quite conservatively, relations between neighbours the norm the world over. And we all know when countries fight, the common man suffers; and in economic battles, perhaps ice-nine isn't entirely fictional.

For the record according to State Bank of Pakistan data on its website on 16 June 2017, Pakistan's external debt stands at US $75.47 billion, a record. The balance of trade for this year stood at a deficit of US $29.9 billion, which means we are not earning dollars at all to pay this foreign debt. Official foreign currency reserves are down to US $14.46 billion, meaning that the ability to borrow more is the only option to stay afloat. And thinks don't look good at the domestic front too; debt and liabilities have increased to Rs 15.27 trillion; accordingly total debt and liabilities are at a phenomenal Rs 23.2 trillion.

The one good thing on the SBP National Summary Data Page is perhaps, arguably, the GDP, which is estimated at Rs 31.8 trillion, a pretty decent jump from last year. But while a higher GDP may make all related ratios such as fiscal deficit and size of debt look good, it cannot put dollars in the official foreign currency reserve account. It cannot even pay the domestic debt.

(The writer is a chartered accountant based in Islamabad. Email: [email protected])



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