Civilizational Killers. Part Two. Debt and Inflation Victor Davis Hanson
https://victorhanson.com/civilizational-killers-part-two-debt-and-inflation/
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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