Victor Davis Hanson
Debt and its twin inflation destroy civilizations. Ancient coins were sometimes called “redheads” as the raised impressed silhouettes of grandees stamped on “silver” coins were the first to have their silver veneers worn away revealing the “red” bronze beneath.
Our paper money is similarly becoming less and less valuable, the more we print of it. Currently, the U.S. owes 130 percent of its gross domestic product, in total about $33 trillion.
The staggering sum has not stopped annual federal borrowing, which may hit $2 trillion this year. The massive borrowing is unsustainable. Yet anyone who tries to cut the massive indebtedness will be smeared as cruel and insensitive.
America apparently shrugs that when the nation faces insolvency, we will deal with the catastrophe the way it is done in the Third World and in antiquity.
One, the state can always pay off its debts by printing endless money and inflating the economy. Germany did that by intent to pay off war reparations to the victorious allies by printing Reichsmarks to the point that they became utterly worthless.
“Quantitative easing” and “Keynesian economics” are largely the story of putting more dollars into the system that chase too few goods, resulting in the hyperinflation that began in summer and autumn 2021.
By 2022 when I began to fix my ancient house, I started to see building materials—plywood, 2x6s, Romex wire, light fixtures, and plastic pipe—at prices not two or three times their pre-Covid costs, but five and six times.
Funny things happen to civilization during hyperinflation. Suddenly, Home Depot began locking high-priced building materials in cages. To buy Romex, you had to get an attendant to unlock the wire locks, who then escorted you directly to checkout, where you either deposited the item behind the counter and continued shopping or bought the single item and went home. And still thefts soared.
When gas hits $5 a gallon in rural California, funnier things happen. Pull into a large station that customarily offers 7-10 cents a gallon for cash sales. Presto, it takes 20 minutes to fill-up, as motorists leave their cars next to the pump, go into the store to prepay with cash their anticipated bills, return to pump, and sometimes reenter the store to add more dollars—as you with a credit card wait patiently for the static car ahead.
A second way for the state to pay off what it cannot pay off is simply to default on its debts. It can do that by reducing the promised interest rates on its federal bonds. In a socialist state like ours, it can honor debt of the less well off, and renege on what it owes “the rich,” who the state will insist can afford to lose what it “greedily” invested.
Any government that rewards bad creditors with cheaper federal home loans and punishes with higher interest rates those with good credit scores, or that adds flat fees on top of monthly electric bills, based on the user’s income, is, well, capable of anything.
A third way to escape our 130 percent of debt to GDP/$33 trillion in debt is simply to renounce it, destroying the credit rating of the U.S. But that can be done in lots of Machiavellian ways. The government, as has been mentioned in leftist circles, can absorb private 401K plans and in return issue Social Security year credits (never of course with as much value).
It can renounce the Social Security payout formulas, slapping all sorts of taxes on the more affluent, from upping the retirement age, to capping their benefits, to raising the income tax on Social Security income with special excise taxes.
It can impose “wealth” taxes on accumulated, already taxed wealth: if you have more than $10 million in assets you could pay a yearly ten percent fee. We have such real estate supertaxes on mansion sales in Los Angeles.
Or Washington could impose a tax on unrealized capital gains that are never harvested by the investor. Again, all of these have special euphemisms, and many have already been contemplated. But in their essence, they are simply the efforts of a bankrupt state to confiscate the wealth of its better-off citizens.
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Log In to CommentThings have a funny way of working out and the universe generally balances. Plunder is always lost by the plunderer in that greed is not confined to an avaricious few. Philandering and faithless officials are as old as mankind and their end is always the same. Thus the benefit of an esteemed historian like Dr. Hanson. Living our own best life is the foundation of a strong family, community, and nation. No success can compensate for failure in the home. All tyrants die, and despots are deposed regularly by good, largely honest, faithful, industrious people who are forced to use force as a last resort. The great misperception is that we Americans are a docile people and will abide by the laws even when corrupt. We are not, and we do not. The corrections will come and it will be us, or others like us, to make it happen.
It has been my experience that in terms to one's household economics, deferred gratification leads to a sense of satisfaction. Whereas, immediate gratification leads to a sense of want.
Yep, inflation is the easiest way for a gov-mint to impoverish & enslave its rabble, leaving unscathed its elites whose wealth sits in real assets, not money.
Shelley’s spouse here. Quite depressing but we have to fight the good fight for our progeny.
The underlying issue is that democrats don't care if the US economy is totally destroyed. It's so upside down now it's hardly recognizable. For the average person, not into scrambling their nest eggs or playing with crypto currency, this is a very demoralizing time. The government froze rents during covid; they can do it again. Now after allowing an unprecedented invasion, the Clinton, Obama, Bush & American Express NGO will be paid by taxpayers to fly illegals all over and DHS has warned that the big house you own should be shared with refugees. Might as well rename the US Immgranistan. If the left isn't leveled soon, we can all bend over and kiss our ***es goodbye.
Amen to everything that has been said here by Victor and others. As Jim said above, all hell is going to break loose. The pain of righting the ship will be intense. I'm in my mid 50's. I can ride it out, but heart breaks for my kids. It is not fair to hand them this mess. Infuriating to see those old dinosaurs in Washington glibly riding along on waves of foolish policies destroying a nation that they didn't build.
Money is a medium of exchange, it supplants the barter system by offering the convenience of a common exchange of a store of value. Value relies on the trust of the participants in an economic system, not some scarce resource such as gold. Value is derived from the wants and needs for goods and services of those within the economy. A gold standard will always fail and a block chain system does little to insure value, and besides, it is based on keeping the electricity connected to computers, another source of failure. In an economy all is well as long as balance is retained between supply and demand, value given for value received. Economic growth comes from deferred gratification, better known as savings, spending less of the discretionary income, both private, and public. Debt spends just like money (assets) except it delays future payment for gratification today. Speculation based not on real assets but based on debt treated as an asset corrupts our present system. It kicks the repayment can down the street until one runs out of street. Debt is always repaid with monetary assets, either yours or theirs, always.
Jim, you described a life in which sound decisions were made. This brings few, if any, major regrets, as well as the wonderful inner satisfaction of a financially secure retirement. These things don't happen by accident, but rather by having a long term plan and the discipline to stick with it. I suspect some frugality played a part, as well. Others, however, count on the B.S. that government (i.e., Santa Claus) tries to sell. Government, in my view, is a necessary evil. It has a parasitic nature to it, as it is only interested in expanding its power over the citizens that it "serves". As long has we have our eyes wide open and realize its inherent bias, then we can be its master, rather than the reverse, as it is now. Individuals as yourself, and so many of us at this site, are not tempted by government's empty promises. I am on SS#, but I know it could end tomorrow and I would have little say about it. By my conscious design, if it did end, I could still get by. I am more optimistic than you in pulling out of this dive, but still far from confident. Trump is my man. But whether elected or not, I attribute the voter appeal of people like DeSantis, Youngkin, Ramaswamy and others to Donald Trump.
Very nicely articulated Mr. Reynolds.
If you own your home and are aged,stop paying taxes,such as school,county twp.Let the bastards put a lien on it.My kids are left so I don't care if they get any inheritance.Can the govt. sieze my property and evict me?Let them try.I live on S.S. and it is hard to pay bills for insurance,heat,air,etc.let alone decent food.It is true madness and I will not be complicit.
Unfortunately there is no desire by the leftists to curb spending. The scenarios you describe above will eventually come to fruition. The gargantuan spending bills keep coming, rolled out one after another by the democrat leadership. There are no audits or accountability. Spending like there's no tomorrow has become pervasive with many folks. Student loans, car loans, credit card debt are out of control. We as a country are turning a blind eye to our eventual financial destruction.
I am likely more similar than different to most of the readers on this site. I am college educated, had a long career in various incrementally ascending posts, worked hard and saved money the whole time. My wife did pretty much the same. The journey was not exactly linear, but the end game was fairly predictable. Yes, I almost died of cancer about 25 years ago, too. Others have had like obstacles to overcome. Now in my early 70s, I live in the woods and own, outright, everything that I “have”. This is by design. I do hard physical work every day because I like it and it is necessary to keep this place going. I also practice the guitar and piano 2-3 hours a day. With that intro, I’ll now speak briefly about what I am concerned with regarding our national predicament. I have some verbal and writing skills, but I see no way that I can contribute anything that will change the “arc of history” as it pertains to our country. I’ll be satisfied with a few head scratches and smiles from anybody who reads this. That does not change the country. I, like many of you, just want to play out the string in a pleasant manner before all hell breaks loose. I think we all know that will happen, but hopefully not on our watch. In the meantime, I have much admiration for VDH, Tucker, Rogan, Greenwald, and many others for fighting the good fight. There is always a chance that America will suddenly wake up. Odds? About 5% that we will pull out of this dive.
With regards to Inflation, because it has been so prevalent in our lifetimes, many of us think it a given to one degree or another. Not so. Comparing the 19th century to the 20th, it was generally a deflationary period (except for during the Civil War era). We had the Industrial revolutions, cotton gin, extension of railroads, and electricity to thank for this. Probably a whole of lot other things to boot.
I have no doubt Victor, that all of the weath grabbing options you presented will present serious temptations to the state if they are allowed. They claim that we must raise the debt ceiling or default on our debt--something that should never happen. Defaulting is such a sham argument. We only default if we do not pay the interest on the debt. So, if the debt ceiling is not raised, we can easily get the money to pay our debt's interest by simply cutting backing funding to other wasteful areas. Boy, here we have a rich field of prospects: NPR, Ukraine war, Planned Parenthood, medical care for illegals, on , and on, and on! The analogy that comes to mind is a very high wage earner that due to profligate spending has maxed out his credit cards. The credit card company refuses to raise his credit limit, and he says responds that you will be denying my child of his life saving medicine. Whereas the man from the C.C. company says, "You can still buy this very important medicine for you son, but you will have to cancel your annual vacation abroad. It's as simple as that! Those citizens that own residential investment property would be well advised to keep it. Should the inflation beast grow much worse, I believe its adverse effects can be offset, partially anyway, by the increase in rents. Rents have adjusted in the past in a timely way to inflation, as I recall. Also, if one still has a mortgage balance, as Victor says, future payments will me made with cheaper dollars.
Dear Dr. Hanson: It can and I think will back the dollar, perhaps the crypto dollar, with natural resources for foreign debtholders. It won't worry about the under-the-thumb domestic debt holder as you well described!