The Burden

| May 12, 2023

I still have the scar on my left shin. Without saying a word, my brother and I had the same idea to play chicken while riding our bikes. Predictably, the two skinny front wheels of our English Racers collided with a precision that we could never deliberately reproduce. I remember the blood and the small bits of gravel that embedded themselves into my hands and knees.

Globally, nations are engaged in a similarly thoughtless game of chicken. Britain’s The Economist magazine recently observed that “governments are living in a fiscal fantasyland. The world over, they are failing to confront the dire state of their finances.” America does come in for deserved criticism, but so too do Britain and China, among others. China is a particular case since the Chinese Communist Party (CCP) hides its debt in “opaque ‘financing vehicles’ used by local governments. Include everything and China’s total public debts are over 120% of GDP, and will rise to nearly 150% by 2027.” * This will be a real problem for a country that is headed for demographic collapse.

France faces similar challenges. The credit-rating firm Fitch recently downgraded French sovereign debt to AA- from AA. Lower debt ratings, reflecting the greater uncertainty of a debtor’s ability to pay, lead to higher interest costs. France is not in a doom loop yet, but the trend is bad. Le Monde’s Françoise Fressoz recently commented that “left and right, business leaders and unions, ministers and local elected officials, have continued to communicate the same denial with a lack of care and bad faith that skirts their irresponsibility.” ** I have done my best with the translation from French.

Ms. Fressoz reminds readers of last spring’s warnings by Banque of France President Pierre Moscovici that the government and the economy of France were menaced by “the illusion of free debt.” Only Germany has been fiscally prudent, maintaining a debt-to-GDP ratio similar to America’s pre-Great Recession. Germany is part of the European Union, so Italy’s profligacy trumps German parsimony. Still, the ability of free nations to negotiate the challenge is probably better than that of China, where transparency and equality under the law does not exist.

My brother and I survived our youthful stupidity with no serious injuries. My visual reminder is in the shape of a crescent moon. The threat posed by the rising interest on the public debt is of a much greater magnitude. Annual interest payments on federal debt have climbed from $411.05-billion on January 1, 2013, to $928.9-billion on January 1, 2023. I am hoping that our leaders will cease to engage in the denial and bad faith that Ms. Fressoz describes so eloquently since the consequences are so much worse. Below is a chart from the St. Louis Fed that illustrates the current magnitude of the problem.


* "Governments are living in a fiscal fantasyland." The Economist, online: Leaders | Bust budgets, May 4, 2023. https://www.economist.com/leaders/2023/05/04/governments-are-living-in-a-fiscal-fantasyland. Accessed 05.04.2023.

** Fressoz, F. "The debt burden has fallen by the wayside as if it had become impossible to put it back in the public debate." Le Monde, Online: Debates | Public Finances, May 9, 2023. https://www.lemonde.fr/idees/article/2023/05/09/le-fardeau-de-la-dette-est-passe-a-la-trappe-comme-s-il-etait-devenu-impossible-de-le-remettre-dans-le-debat-public_6172579_3232.html. Accessed on 05.09.2023. 

Graph: U.S. Bureau of Economic Analysis, Federal government current expenditures: Interest payments [A091RC1Q027SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A091RC1Q027SBEA, May 8, 2023.