Amerika

The world is likely heading to war because once again, democracy has locked itself into too many rules and run up too much debt. The only way out is mass mobilization, which creates an economy based around war, and therefore enables the debt of the winners to be paid off easily.

Like all democracies, the first world has created a political system that consists of applying the same methods over and over again but fighting over the details of how the wealth is redistributed. All of this subtracts from the economy and therefore, continually saps the prosperity of the nation just like Communism.

Since WW2, the West has been able to get away with cruising on debt to pay for entitlements, assuming that its rising debt will hurt nothing. Recent reassessments show that in fact debt wrecks currency by devaluing it:

For over a decade, numerous economists – primarily but not exclusively on the left – have argued that the potential benefits of using debt to finance government spending far outweigh any associated costs. The notion that advanced economies could suffer from debt overhang was widely dismissed, and dissenting voices were often ridiculed. Even the International Monetary Fund, traditionally a stalwart advocate of fiscal prudence, began to support high levels of debt-financed stimulus.

The tide has turned over the past two years, as this type of magical thinking collided with the harsh realities of high inflation and the return to normal long-term real interest rates. A recent reassessment by three senior IMF economists underscores this remarkable shift. The authors project that the advanced economies’ average debt-to-income ratio will rise to 120% of GDP by 2028, owing to their declining long-term growth prospects. They also note that with elevated borrowing costs becoming the “new normal,” developed countries must “gradually and credibly rebuild fiscal buffers and ensure the sustainability of their sovereign debt.”

While some might argue that countries can simply grow their way out of high debt, citing the United States’ postwar boom as an example, a recent paper by economists Julien Acalin and Laurence M. Ball refutes this notion. Their research shows that without the strict interest-rate controls the US imposed after the end of World War II and periodic inflationary surges, America’s debt-to-GDP ratio would have been 74% in 1974, instead of 23%.

Over time, debt limits growth, which means that the economy does not stay ahead of the declining value of its currency, which makes it crash even further. The more debt, the less valuable the currency is, although at low enough levels this effect gets masked by other growth drivers in the economy.

At some point however, a line is crossed and currency default — which massively reduces the value of the currency — occurs:

Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation). Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the U.S. and world economies.

If the relationship between past estimates and history is anything to go by, this time figure is too generous. The gap will close sooner than anyone thinks it will due to other political and economic factors. However, if they come out and say that, panic will result.

Luckily, America is not alone; the entire world is facing an epic debt bomb based on reckless borrowing for the entitlements state:

In an interview Sunday with CNBC at a WEF conference in Saudi Arabia, Borge Brende warned overall debt is approaching the world’s total economic output. “We haven’t seen this kind of debt since the Napoleonic Wars,” he said. “We’re getting close to 100% of global GDP in debt.”

According to the International Monetary Fund last year, global public debt hit $91 trillion, or 92% of GDP, by the end of 2022. That was actually a dip from pandemic-era debt levels but remained in line with a decades-long trend higher. Data on global debt during the Napoleonic Wars, which took place in the early 1800s, is harder to come by. But for comparison, some estimates put British government debt at more than 200% of GDP by 1815.

Brende also told CNBC that governments need to take fiscal measures to reduce their debts without triggering a recession. For now, global growth is about 3.2% annually, which isn’t bad, but it’s also below the 4% trend growth the world had seen for decades, he said earlier in the interview. That risks a repeat of the 1970s, when growth was low for a decade, Brende added.

We are seeing the first defaults lining up at the levels of nations, cities, and states. Most likely Germany will be able to hold this off for another decade, but Germoney has damaged its financial position through heavy debt:

“In an unfavorable scenario, the increasing financing deficits lead to an increase in debt in relation to economic output to around 345 percent in the long term,” reads the Sustainability Report released by his office. “In a favorable scenario, the rate will rise to around 140 percent of gross domestic product by 2070.”

Under EU law, Germany has limited its debt levels to 60 percent of economic output, which requires dramatic savings. A huge factor is Germany’s rapidly aging population, with a debt explosion on the horizon as more and more citizens head into retirement while tax revenues shrink and the social welfare system grows — in part due to the country’s exploding immigrant population.

Finally someone mentions the “social welfare system” and the effects on it of Boomers dying out while immigrants come surging in. Costs are going to go up as revenues plunge, and this means that Germany is heading for a crash sooner rather than later.

Then we consider the perilous situation of many American cities, such as diversity nexus Houston which just announced that it is officially broke:

With an estimated current deficit of at least $160 million, Whitmire is exploring a 5% across-the-board-cut to all aspects of City government, barring firefighters and police.

States also face a shortfall which is why property tax rates are going up at the same time homes are being valued at higher prices, causing a property tax ambush for ordinary citizens:

When Ransom bought her home, the property tax was around $2,700, she told WFLA-TV, adding that she expected it to “vary a little bit, [maybe] a few hundred [to] a thousand dollars,” but the 174% jump (which would take her annual property tax to around $4,700) was much beyond what she imagined.

According to Zillow, the average home value in Polk County,where Ransom is based, in March 2024 was $313,845, up 1.6% from a year prior when the average home price was $308,708 and up 39% from three-years-ago, when the average was $225,341.

Much of that property tax goes to paying for services and public education for illegal aliens, who are both not acknowledged in official population estimates and pay less into the system generally. This means that each citizen is carrying more people through their property taxes, and still the states and cities are going broke.

Add to this the need for constant “growth” to stay above the damage done to our currencies by entitlements, a need serviced by importing warm bodies from the third world at the same time more production goes offshore, and we see the death cycle in which Europe and other areas find themselves:

Until the 1980s, the two economies were at rough parity. Since then, we have witnessed a macroeconomic disparity between the continents where the US, in spite of crises, has continued to gain ground while Europe has stalled out. Twenty-five years after the creation of the single European currency, the score has become clear: American growth has more than doubled that of the eurozone. Since 2000, the eurozone has lagged behind the US by 17%.

Europe’s stagnation is no longer a risk but a reality that needs to be urgently tackled given that the point of no return is fast approaching. “If the EU is doomed to dependence on American [economic] might, we risk being permanently exposed to competitive pressures that will eventually prevent European integration from being completed, with the risk of dislocation at the end of the day,” said economist Véronique Riches-Flores. “As long as we were in a friendly world, our relative decline went unnoticed. But today’s geopolitical tensions cast a harsh light on our vulnerabilities.”

The US stays ahead by pure size and the ability to bring in many more people and export many more jobs, stimulating its economy with investment even if that is transient and the real value goes overseas. Europe, without as many resources, finds itself losing at this game.

Worlwide we see a debt bomb getting ready to detonate as debt piles higher, possibly taking down industries linked to speculation as it collapses.

Democracies always tend to end this way. The citizens decide they want free stuff; government gives them what they want today and defers figuring out how to pay for it. At some point, the debt piles up and everything becomes worthless, at which point the civilization collapses into third world status.

We might call it the anarchy-socialism cycle. The more anarchy you have, or abolishing social order in favor of individuals, the more the individuals want a paid babysitter so that they can pursue increasingly grandiose and unrealistic visions. This leads to the final decay that takes out a functional economy.

Tags: currency, debt, value