William S. Lind
Director of National Intelligence and former U.S. Senator Dan Coates recently told Congress that the greatest threat our country faces is our own vast and growing national debt. During the 2016 Presidential campaign JCS Chairman General Joseph Dunford gave the same message to both candidates. No one, it seems, is listening. When I served on Capitol Hill as a staffer in the 1970s and 1980s, the two parties fought fiercely over whether to fund more domestic programs and cut defense spending or do the opposite. Now, that fight is over. Both parties in Congress agree that we will just give everyone whatever they want and borrow the money to pay for it. The latest budget deal is merely one example.
Nor is the practice of buying whatever anyone wants and piling up debt to pay for it restricted to government or to the United States. It is a world-wide phenomenon, and it is as marked a practice in the financing of private individuals and households as of governments. In China, the twin piles of government and private debt have built the two tallest pagodas the world has ever seen.
Apart from a few spoil-sports, everyone agrees we can ignore history’s warnings about the dangers of debt because, well, this time is different. That is the title of an excellent book on three hundred years of financial crisis. People always think “this time is different.” It never is.
Let me offer a quick refresher on debt crises. They are not mere garden-variety recessions. A debt crisis usually creates, first, a deep, long-lasting depression. The depression comes from the fact that lenders are no longer willing to make loans at interest rates anyone can afford. Consumption, public and private, must shrink to whatever revenues can support. More, a great deal of what revenue remains must be used to pay interest on the mountain of debt. In the late 1780s, interest on France’s debt claimed more than half the state’s revenue. Good King Louis XVI had to call France’s parliament, the Estates General, into session for the first time since the 1600s because only the Estates could raise taxes. The Estates General quickly proclaimed itself the National Assembly, sidelined the King and, well, the rest is history.
Worse, both states and individuals have to cut their consumption below what their revenues can support in order to pay back the debt. But states have another way out. They can inflate the currency and pay the debt back in worthless money. At that point, the unhappy state’s citizens have the worst of both worlds: a depression and hyperinflation that wipes out their savings. Economists will say you cannot have a depression and inflation at the same time. History begs to differ.
In the face of looming disaster, the very least states ought to do, along with putting their financial houses in order, is to avoid actions that are likely to set off the crisis. At the top of the list is war. War is the most expensive activity in which a state can engage. War’s outcomes are unpredictable, as are their boundaries: many a war has spread far beyond the place where it began. If I were betting, I would wager that the two wars most likely to push the world’s financial system over the cliff are wars in east Asia or the Persian Gulf.
Here we see the broadest picture of the folly of those in Washington pushing for war with both North Korea and Iran. Either war can go wrong militarily. Neither is likely to improve our strategic position. But if either were to set off the international debt crisis, we would have put the existence of this state and many others in jeopardy over trivial causes.
For many years, I have warned that what is at stake in the 21st century is the state system itself. Nothing can more quickly or powerfully sharpen the crisis of legitimacy of the state than an international debt crisis. Most of the world’s peoples, in rich countries and poor, will find themselves and their families and businesses ruined. Their anger will run deep. Who will be to blame other than the state? What state will then retain its legitimacy?
As the Orthodox Church prays, God curse those who would bring on the apocalypse.
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