The ideas that debt must someday be repaid, and that it can’t keep growing faster than the underlying income that will service it, are quaint notions that have no relevance it this day of brilliant central bankers and economic planners. From Simon Black at sovereignman.com:
According to Jacques Necker, everything was just fine.
The year was 1781, and Necker, France’s finance minister, had just published a report called Compte Rendu au Roi, an accounting of French public finances.
Necker’s report showed that, despite extraordinary public services and military spending, France had a net credit position of +10 million livres.
In other words, the country was in perfect fiscal health.
It turns out that Necker had cooked the books.
Rather than being 10 million on the positive side, France had racked up 520 million livres worth of debt and could no longer afford to pay interest.
France had spent decades accumulating prodigious debts. They built monuments, parks, and splendid cities that still inspire awe today.
They explored the world and expanded their empire. They engaged in almost constant military conquest in far-away lands.
This all came at great cost. But it never seemed to matter.
The French government knew they were the world’s dominant superpower, and they overspent their national income as if it were their divine privilege to do so.
As William Olphus describes in his book Immoderate Greatness: Why Civilizations Fail, the French “tended to see the natural world as cornucopian– that is, as a banquet on which they were free to gorge without limit.”
Nearly all superpowers see the world in this way. ‘We’re #1 therefore we no longer have to be fiscally prudent.’
Sir John Glubb, having seen his own British Empire fade as the world’s superpower throughout the 20th century, wrote The Fate of Empires in 1978.
Glubb argues that great civilizations start with an Age of Pioneers– those who work hard and build wealth.
It then progress rapidly through an Age of Commercial Expansion, Affluence, and Intellect, before decaying in an Age of Decadence in which the entire society feels entitled to a level of wealth that they neither earned nor can longer afford.
Even when faced with obvious fiscal realities, they make no changes.
Only when a crisis erupts does the society demand action. And of course, at that point, it’s too late.
Such was the case of France in the late 1700s– a situation so desperate that the finance minister resorted to all-out lies in order to conceal their true condition.
Most of the West is in this position today– summed up by Jean-Claude Junker’s (former President of the European Council) explanation of the Greek debt crisis in 2011: “When it gets serious, you have to lie.”
Over in the United States, the Congressional Budget Office (CBO) recently published its own projections for America’s grim public finances.
Bear in mind that US debt is already $19+ trillion and climbing. The CBO sees at least another $10 trillion in debt in the coming years, and projects that the US budget deficit will increase every single year.
The evidence is already so clear.
Military retirement spending rose by 8.7% last year. Medicare costs were up 10%. Certain government employee benefit programs rose by 17%.
Overall mandatory outlays rose on average by 6.6%, three times faster than US GDP.
So essentially the US government’s spending growth is far outpacing US economic growth.
It doesn’t take a rocket scientist to see how dangerous this is.
To continue reading: Get ready for America’s new $29 trillion debt