With Congress considering yet another stimulus bill with the price tag measured in trillions, Victor Davis Hanson offers a sobering reminder of what comes next.
The deficit is expected to exceed $4 trillion soon and the national debt may climb to $30 trillion or nearly $100,000 for every American.
How will the United States sustain this level of debt, let alone repay it?
VDH offers five ugly choices. Inflation looks like the most expedient option for the political class.
Negative Interest Rates
One, Americans would be forced to live with permanent near-zero interest rates, or perhaps even negative interest rates.
We are already seeing how the current low interest rates punish those who were thrifty and put away money in savings accounts. Negligible interest rewards those who borrow but forces savers to look for returns in volatile real estate or the risky stock market.
Two, Americans, who are already taxed heavily at the local, state, and federal levels, would simply have to pay even more. Top earners might pay a real tax rate of 60 percent to 70 percent of their incomes to government, with deleterious effects on incentives to create or earn further wealth.
Three, the government could make draconian cuts in spending, focusing mostly on entitlements such as Social Security and Medicare, along with defense, where the bulk of federal expenditures are found.
Inflate it Away
Four, the government could fall into the bad habits of the 1970s and simply expand the money supply, fuel inflation, and pay down the debt with funny money. We would then likely experience the baleful consequences that a prior generation faced with stagflation and curative but staggeringly high interest rates during the Nixon, Ford, Carter, and early Reagan administrations.
Hope We Grow our Way Out
Five, the government could hope that new deregulation and more tax incentives might spur GDP growth of 3 percent or more per annum and thus “grow” our way out of deficits by radically expanding the economy. Such optimism is frequently voiced but rarely has prevented large budget deficits.