This is unsustainable. (But don’t tell Paul Krugman this.)
It is a reflection of a country which has lost its way in many regards. For all the talk we hear of CEOs only focusing on the next quarter so they can jack up their bonuses, we don’t seem to see that this is exactly what politicians do also as they increase spending more and more over revenue coming in. The politicians want their short term bonus too – reelection.
And remember, interest rates are at ridiculously low rates right now. If we are spending 26% of revenue on interest payments currently, what’s going to happen when rates rise? (As the will.) It’s not like many Americans would ever give up on their federal checks or various forms.So we’ll take on more debt at higher rates, which will encourage yet higher rates, which will then . . . Well, you get it.
Let’s just say it will be a very hard pattern to pull ourselves out of.
(From The Sovereign Man)
In 1868, the Ottoman government spent 17% of its entire tax revenue just to pay interest on the debt.
And they were well past the point of no return where they had to borrow money just to pay interest on the money they had already borrowed.
The increased debt meant the interest payments also increased. And three years later in 1871, the government was spending 32% of its tax revenue just to pay interest.
By 1877, the Ottoman government was spending 52% of its tax revenue just to pay interest. And at that point they were finished. They defaulted that year.
This is a common story throughout history.
For more from Nick Sorrentino, visit AgainstCronyCapitalism.org
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