A very good article by Victor Davis Hanson on the impact of the growing national debt. As I read his analysis I couldn't help but the think of the hyperinflation in the Weimar Republic in the 1920s. The rich win because of their Wall Street connections and the poor win because of the welfare state, but the middle class is destroyed because they cannot protect its assets from inflation the way the wealthy can. This was the process that destroyed democracy in Germany in the 1920s.
If interest ever returned to 1997 levels, at say 6.6%, we’d be paying over a trillion dollars a year in debt service. In crude terms, the winners of this Ponzi scheme are the very wealthy connected to Wall Street, which is flooded with foreign and domestic capital. It need not do much of anything more than outperform a pathetic 1% return on savings accounts.
The poor benefit from the vast increase in federal spending and exemption from federal income taxes. In contrast, the middle class still pays high interest on its student loans, credit card, and, to a lesser extent, car debt, receives almost no interest on its meager savings accounts, and is not so ready, after 2008, to dabble in real estate and the stock market.
In some sense, holders of U.S. Treasury debt and passbook savers are giving up hundreds of billions of dollars in interest returns (cf. the difference, say, between 1% and a more normal 5%) to subsidize the redistributive policies of the federal government.
The lack of interest, or de facto negative interest, keeps the near-retired working and hampers job prospects of the young; discourages thrift, savings and investment; and plays an underappreciated role in the slow economic recovery. The Democrats must deal with the contradiction of needing zero interest rates to service their recent extra $6 trillion in debt, and higher interest to encourage savings, investment, and job growth.
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