Who will pay for the National Debt?


We talk about how we are passing the national debt off to to our children, the next generation. I think that won’t be the case. As I approach retirement this becomes an important question to me.

In the 1920’s, apparently intentionally to pay off its war debt, Germany inflated its currency. Metaxas, in Bonhoeffer, relays the story of how his father at some point decided to cash in his pension to by a bottle of wine and some cheese. By the time they could cash it in, they could only get the wine (of vis versa). A big part of the price was paid by the people with savings.

As our government continues to spend and borrow money, at rates that cannot be paid for with even by raising taxes catastrophically, someone eventually will have to pay. If fact spending increases (and new tax loopholes) already consumed the January tax increases. Some of us already are paying, with artificially low interest rates that don’t even cover inflation. As the government continues with no plan to balance its budget, much less pay off its debt, more and more investors will realize the government is a bad risk, and the Fed will be forced to print money to feed the government instead of using it to regulate the economy.
Already people with retirement accounts are paying for this with low interest rates, and I expect it is also a drag on the economy as investments are not worth the risk.

Youth, many without jobs are not paying taxes, or accumulating savings.

I expect high inflation rates to to follow, which will hit those on fixed income. Government payments will not keep up, or running the printing presses (fed computers?) will feed inflation. I don’t know how this ends. Maybe outright government confiscation of assets? Or reversion to a barter society.

People with pensions, people with savings, people with assets will pay for this, not with no savings.

I think the solution is to take the hits now, when they might have less impact, and perhaps be controlled. Balancing the budget is the first step. As the government is an element of the economy, this will hurt, probably trigger a recession.. But it will be better to take that now, than the depression latter.

I will continue to save and invest. I will have to plan on receiving less pension than promised. I will have to live off the principal of my accounts, instead of interest. And I will plan to work part time.

I’m not an economist so I’m probably way off base. I expect this to happen soon and probably rapidly. Indeed, I’ve been expecting it for a few years, as I do not understand why people continue to loan money to a bankrupt government. Maybe it won’t happen. After all, I expected the stock market crash of 1998 – from unsustainable stock Price/Earnings ratios.

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