National Debt Origins: Exploring Sources of Defense Funds

In recent years, a growing debt crisis has become a pressing issue for many industrialized nations. The escalating debt levels are causing a significant shift in spending patterns, with defense and interest accounting for a substantial portion of the federal budget.

According to forecasts, spending on defense (excluding infrastructure) and interest will comprise 20% of the federal budget in 2024, but is set to nearly double, reaching almost 40% by 2029. This surge in debt is largely due to a structural decline in economic growth and the impact of economic crises, such as the global financial crisis and the COVID-19 pandemic.

Economic growth has not kept pace with the rising debt, necessitating more public debt to finance declining growth. This situation has led to headlines like "Pray for the US Treasury market" in the Financial Times, as rising yields on US Treasury bonds have become a cause for concern.

The debt crisis is not just a localized issue; it is a global concern. The debt of companies worldwide is increasing, reaching record highs in some countries. Governments have plugged massive gaps in the corporate sector with credit, saved private wealth, and compensated for falls in private demand.

Even the mighty US dollar is approaching a crisis of confidence, according to ING. In Europe, countries like France face potential collapses due to political pressure on austerity packages, leading to increased interest rates for new debt. The French government, for instance, now spends almost as much on interest as on defense.

The United States, under the leadership of President Donald Trump, has seen a significant increase in public debt due to tax cut plans, leading to billions of dollars in new debt. This trend is not unique to the US; many other countries are grappling with similar issues.

The global debt crisis has far-reaching implications. According to the UN, 3.3 billion people now live in a state of debt crisis. Social Security has been cut in the US, unemployment benefits are set to be reduced in Britain and Germany, and pension funds are seen as rescue cases in all countries.

Economists like Gita Gopinath, IMF Chief Economist, have noted that debt is incredibly high and rising. The Chancellor of the Exchequer in Britain faces a budget deficit of around £50 billion. The public debt-to-GDP ratio of industrialized countries has reached 115 percent, over 40 percentage points more than at the beginning of the century.

In response to this crisis, a new round of "austerity" politics is looming. Everything that only benefits people but not the gross domestic product is coming under scrutiny. This could potentially impact public services such as healthcare and education.

The market for long-term securities from France, Britain, and the USA is in a fragile state. While a debt crisis is only threatening in the richer industrialized countries, it has already occurred elsewhere, according to Indermit Gill, chief economist of the World Bank.

As the global debt crisis continues to unfold, it is clear that drastic measures will be necessary to address this issue. The argument that aid for the poor or childcare is also part of the GDP is an attempt by the left to reconcile public services with the radicalized demands of governments and financial investors. However, the path forward is not without challenges, and it is crucial for policymakers to navigate these complexities carefully.