Remember the more than US$50 trillion we printed to save the world, twice? Yeah, it seems we didn’t get the memo on that (Office Space, 1999), but that’s still there. It was fine when we were financing the whole lot for nothing, but the world has changed in the last eighteen months, and interest costs have risen exponentially.
The UK now spends well over 10% of its entire annual budget on servicing its debt. That’s likely to rise, as much higher current interest rates replace the ones coming due for refinancing. It’s not like any other government on earth is not trying to spend itself out of trouble these days. The US certainly doesn’t seem to be inclined to lowering the debt ceiling any time soon.
If growth or productivity don’t bail us out, where are we going to get the money from to pay for it all? Taxes are an obvious solution, levelling up, and redistributing wealth on a massive scale. However, that will only make Dubai and Monaco even more crowded, and it also takes away any incentive to build a productive economy.
That really only leaves one policy tool that can make all of this work: print more! Clearly, when you owe so much more than you own, you need to find a way to keep the costs low. To maintain artificially low interest rates to service its debt, which is more than twice as large as its GDP, Japan spent more on buying its own bonds last year, than the entire economic output of Italy. Saluti.