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Saturday, March 29, 2014

U.S now spending 26% of available tax revenue just to pay interest

By the 19th century, the Ottoman Empire had become a has-been power whose glory days as the world’s superpower were well behind them.
They had been supplanted the French, the British, and the Russian empires in all matters of economic, military, and diplomatic strength. Much of this was due to the Ottoman Empire’s massive debt burden.
In 1868, the Ottoman government spent 17% of its entire tax revenue just to pay interest on the debt.
And they were well past the point of no return where they had to borrow money just to pay interest on the money they had already borrowed.
The increased debt meant the interest payments also increased. And three years later in 1871, the government was spending 32% of its tax revenue just to pay interest.
By 1877, the Ottoman government was spending 52% of its tax revenue just to pay interest. And at that point they were finished. They defaulted that year.
This is a common story throughout history.
The French government saw a meteoric rise in their debt throughout the late 1700s. By 1788, on the eve of the French Revolution, they spent 62% of their tax revenue to pay interest on the debt.
Charles I of Spain had so much debt that by 1559, interest payments exceeded ordinary revenue of the Habsburg monarchy. Spain defaulted four times on its debt before the end of the century.
It doesn’t take a rocket scientist to figure out that an unsustainable debt burden soundly tolls the death knell of a nation’s economy, and its government.
Unfortunately, it can sometimes take a rocket scientist to figure out what the real numbers are; governments have a vested interest in not being transparent about their debts and interest payments.

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