Sovereign Debt is Eating the World – How did we get here?

The aftermath of COVID-19 and quarantine has left many of us with myopic tendencies,  and we are not looking at the bigger picture of how debt is impacting the world and what the consequences may be if our leaders or “We the People” voters don’t take any action to correct the problem.

On November 11, 2023 Peter St. Onge, a Mises Institute Associated Scholar and an Economic Research Fellow at the Heritage Foundation, wrote an op-ed on global debts:

“Sovereign debt is eating the world. Lining up a financial crash that could make 2008 look like a picnic.

In short, governments and central banks deluded themselves into thinking that unlimited deficit spending financed by unlimited money printing won’t do what they’ve done for literally millennia — plunge the economy into stagflation.

They are, of course, wrong. And we’re seeing the catastrophe unfold before our eyes.

We have two theoretical ways to stop a crisis: Fiscal and monetary.

Fiscal meaning dramatically reduce government spending, perhaps starting to pay off debt.

And monetary meaning reduce the ability of central banks to finance those deficits via inflation.

What it would take on fiscal is either voters waking up and realizing en masse that we’re headed for a debt cliff. Or some ‘balanced budget’ mechanism — a Constitutional amendment, or perhaps Warren Buffett’s plan that if Congress can’t balance the budget, they all have to resign with a lifetime ban from politics. They would probably find a way. [emphasis & link by HFL]

Failing that, default also balances the budget. Because nobody will lend to you after you default. Of course, in the US case that would evaporate $34 trillion in paper wealth, which would wipe out thousands of banks, companies, and pension funds. It would be ugly.

And then the other solution: monetary. Here you could either End the Fed — in fact, end all the central banks. That would force governments to actually finance their deficits in the private market, which would not finance $10 trillion at a time.”

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