Every Wednesday at 11:05am talk show host Gary Nolan and I discuss the economy and politics. The Fort Myers Mises Circle presentations are available online.
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When an individual takes on too much debt, personal bankruptcy is a typical outcome. When a business increases its debt load and revenues plummet, losses pile up and bankruptcy usually occurs.
When a national government’s debt increases and servicing the debt skyrockets, several outcomes are possible. Taxes are increased, spending is reduced or some combination of the two kick in. Higher taxes have negative effects on economic activity—less investment, less consumption and probably higher unemployment. In short, more government intervention is counterproductive, to say the least, from the perspective of economic freedom and prosperity.
The more ominous possibility of a spike in a country’s debt is the central bank buys the Treasury’s debt, i.e., prints money, (monetary inflation) and in due time, the nation’s currency plummets in value causing prices to rise (price inflation). This reduces the real value of the debt, effectively wiping out the suckers who purchased the Treasury bonds to allow the government to pay its bill.
Argentina is experiencing runaway inflation because the central bank has been “monetizing the debt” to pay for the national government’s reckless spending. The election of Javier Milei as the new president of Argentina who campaigned to abolish the central bank is the public’s reaction to the poverty caused by triple digit inflation.
The rise in interest rates since 2021 and the never-ending spending by national governments, which will pay $2 trillion in interest in 2023, and by the end of the 2020s the interest costs will jump to well above $3 trillion.
Will there be enough public savings to purchase the skyrocketing debt over the next few years? To ask the question is to answer it.
This means central banks will be monetizing a substantial portion of the new global debt that would be issued for many years to come. We would then have a global runaway inflation as the new money spreads through the world economy resulting in an inflationary depression.
Governments would react to the downward economic spiral with wage-price controls, capital controls, and protectionism, exasperating the economic turmoil caused by runaway spending and debt.
Great Depression 2.0 is highly probable by the 2030s.
Would more “Mileis” be elected throughout the world on a platform of abolishing central banks, the “engines of inflation,” and begin to reduce government spending to free up the economy from the “greedy politicians” of national governments?
The day of reckoning is fast approaching. Ideas have consequences and the idea that governments can spend recklessly because their central banks would bail them out by buying the flood of debt which is turning into a tsunami is a fool’s errand.
Murray Rothbard’s The Case Against the Fed, Ron Paul’s End the Fed and my Why the Federal Reserve Sucks reveal the need to separate money from the government. A free-market money is desperately needed to end price inflation, the boom-busts cycle, and restore sustainable prosperity.
It is now up the American people to make their voices heard.