Posted on 10/16/2025 8:59:25 PM PDT by SeekAndFind
Just about everywhere you look in the rich world, government finances are in ruins. France, as its debt mounts, is getting through prime ministers faster than Versailles went through wigs; on October 14th Sébastien Lecornu, the latest, proposed delaying an increase to the retirement age that was meant to restore sanity to the budget. In Japan both rival candidates for prime minister want to splash out, despite their country’s vast debts. Britain faces big tax rises to plug a hole in its budget, after welfare reforms were mostly abandoned—and despite a supposed once-and-for-all tax rise last year. Looming over everything is America’s unsustainable deficit of 6% of GDP, which President Donald Trump muses about adding to with yet more tax cuts.
How long can governments live so far beyond their means? Rich-world public debt is already worth 110% of GDP; before the covid-19 pandemic, it had been so high only after the Napoleonic wars. Then, Britain ran almost a century of tight budgets to pay back its creditors. Yet, as our special report explains, politicians today struggle to balance the books.
They cannot avoid rising interest bills and higher defence spending; ageing populations exert an irresistible electoral pressure to hand over more cash.
Tax rises are just as hard. In Europe government revenues are already high; in America taxes are a ticket to electoral defeat. Only once in the era of universal suffrage has a G7 economy achieved a big fall in debt primarily by tightening its belt: Canada starting in the 1990s, at the height of the technocratic era. Do not bet on anyone repeating the trick today.
You might hope that productivity growth, powered by artificial intelligence (AI), would relieve the state of difficult budget choices. But that would be wishful thinking. Countries tend to grow their way out of debt because their workforce is increasing or they are small and catching up with other economies. Breakthrough technologies like AI are different. Pensions and health-care spending tend to rise with incomes: in big welfare states they will surge along with productivity. So too, say standard economic models, will interest rates. If AI has miraculous effects on growth, today’s exorbitant spending on data centres and chips will become even bigger. This will lift interest rates, making legacy debts more expensive to service and offsetting the fiscal windfall that comes from faster growth.
It is therefore increasingly likely that governments will instead resort to inflation and financial repression to reduce the real value of their high debts, as they did in the decades after the second world war. The machinery for such a strategy is in place at central banks, which have a large footprint in bond markets.
Already, populists such as Mr Trump and Nigel Farage in Britain attack their country’s central banks with proposals that would weaken the defences against inflation.
Price rises are unpopular—just ask the hapless Joe Biden—but they do not need political support to get going. Nobody voted for them in the 1970s or in 2022. When governments cannot get their act together, and run economic policies that are unsustainable, bouts of inflation just happen. By the time markets wake up, it is too late.
All the more reason to think ahead and reflect on how inflation harms the economy and society. It redistributes wealth unfairly: from creditors to debtors; from those with cash and bonds to those who own real assets such as houses; and from those who agree on contracts and wages in cash terms to those wily enough to anticipate higher prices. It causes what John Maynard Keynes called an “arbitrary rearrangement of riches”. And that could happen just as societies are grappling with other transfers of wealth that the losers will also see as unfair: in the labour market, as AI takes on routine office work; and through inheritance, as baby-boomers bequeath vast property wealth to those lucky enough to have the right parents.
This multipronged upheaval of fortunes could wreck the middle class, which binds democracies together, and scramble the social contract. In the 20th century Argentina, plagued by inflation, went from being one of the world’s richest young countries to a middle-income economy that lurched from one crisis to the next. The competition that raged in Buenos Aires was not over who could innovate or be the most productive, but over who could capture the state and exploit its power to help them avoid inflation’s confiscatory effects. That is the future for places where leaders deny or avoid budget constraints in their pursuit of redistribution. A decade ago this newspaper urged emerging markets like Brazil and India to heed the parable of Argentina. Today our warning is for the world’s richest economies.
Yet that downward spiral is not inevitable. The sustained price rises of the 1970s also led to the election of Ronald Reagan and Margaret Thatcher, who saw sound money as central to the pact between the state and the citizen. They established an orthodoxy which said that, if public debts were to be honoured, then they also needed to be justified and sustainable. The Federal Reserve waged a war on inflation that established the credibility of independent central banks for a generation. This technocratic model spread. The decline of inflation in most emerging markets since the 1990s has been miraculous. Even the beleaguered Javier Milei may yet enable Argentina to thrive.
If the world emerges with lower debts and conscious of the dangers of excessive borrowing, a renewal of sorts is possible. The alternative would be for the world’s most important economies to descend into chaos. ■
Answer: oil. ✅🇱🇷
As I see it, there are three ways to deal with a huge sovereign debt.
1. Default on the debt.
2. Cut back spending while raising taxes to ruinous levels.
3. Pay back the debt with inflated paper.
A banana republic might try option #1.
A communist country might try some version of option #2.
I’m thinking the author is right.
Western countries are going to go with option #3.
Trump and Bessant are trying to up the economic growth.
The only way to refute liberalism is to reap the consequences.
Bacon!
A lot of the debt is owed within the US. That said, before ruining the value of what hard working patriotic law abiding citizens worked much of their lives for, we should take away all the money any and all politicians made while in public office running up the debt. While contemplating this think about all the bs money that was spent via USAID. That’s just the tip of the iceberg. They screwed us and should have to pay a price for that.
> Trump and Bessant are trying to up the economic growth. <
Yes they certainly are. But I fear it’s just a drop in the bucket. The key player here is Congress. And those folks simply will not put a brake on their spending.
Trump’s policies will probably bring more money into the Treasury. Congress will probably just spend it all, and more.
Sorry for the pessimism.
Your Congress spends money like a drunken sailor and Trump is adverse to cuts because of mid-term elections or fear of being unpopular
There is no getting out of this mess it seems......
“It is therefore increasingly likely that governments will instead resort to inflation and financial repression...”
At first, maybe, but #1, default is the end game. It’s the only way to clear the unpayable debt that won’t result in collapse of the central government. Just say that all the people who bought government debt are screwed, and move on. There will be chaos, but eventually things will work again.
Capitalism will win.
You raise some interesting points. One scheme I read about is to pay off all existing government debt with very long-term, very low interest government bonds.
So let’s say that you hold a ten-year, $500 Treasury note paying 5%. The Feds pay that off by giving you a $500 bond that matures in 100 years. Interest is pegged at 1%.
That’s darn near a default. But who are you going to complain to?
Regarding the 5th paragraph about AI and data centers, there was a news story a few days ago on this subject. It said that 90% of the (U.S.’s ?) growth in the first half of 2025 was due to spending/investment in data centers.
Tradition IRAs and the equivalent are not recommeded.
cant be the socialist commie rats
Any candidate who runs a political campaign built on promises of financial responsibility is going to lose handily.
Then, Britain ran almost a century of tight budgets to pay back its creditors.
_______________________
During that time, Britain went through time of unprecedent growth.
Remember Queen Victoria and industrial revolution?
Maybe another century of tight budgets would be the solution?
Good to try?!
Civilization is going to collapse.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.