It is a wise rule and should be fundamental in a government disposed to cherish its credit, and at the same time to restrain the use of it within the limits of its faculties, “never to borrow a dollar without laying a tax in the same instant for paying the interest annually, and the principal within a given term; and to consider that tax as pledged to the creditors on the public faith.” On such a pledge as this, sacredly observed, a government may always command, on a reasonable interest, all the lendable money of their citizens, while the necessity of an equivalent tax is a salutary warning to them and their constituents against oppressions, bankruptcy, and its inevitable consequence, revolution.
Those who propose additional (steep) deficit spending, and those who advocate draconian cuts because the debt is growing at an unsustainable rate are both correct. The former because tax revenue is too low to support the government’s national and global commitments; the latter because the growing debt is rapidly approaching the point where the bond market will not support it. Proof of that is that the interest rate the government is compelled to pay for its debt is increasing.
That the government has not announced a plan to balance the budget, which is the one sure way to halt deficit spending in its tracks, suggests that either (a) it doesn’t have one, or (b) it does but lacks the political support to enact it. Accordingly, option (c) is to let the drama play out on its own. Unfortunately, it’s already happened to other great powers that dominated the financial world before, and they’ve yet to recover their prominence.
