Kicking the Can Down the Road, Until the Road is Full of Cans

     Government budget deficits (the excess of spending over revenue) in industrial countries have been growing as a percent of GDP for the past 20 years. Large deficits emerged after the oil crisis in the mid-1970s and widened dramatically after 1980, largely the result of government overspending rather than meager tax receipts. Government expenditures in industrial countries rose from 28 percent of GDP in 1960 to 50 percent in 1994. These deficits have sharply increased the public debt (the accumulated burden of yearly budget deficits), which jumped to 70 percent of GDP in 1995 from 40 percent in 1980, weakening government finances and draining resources from the economy. Aging populations and sluggish economic growth add urgency to this worrisome trend. Governments now have little choice but to restructure their spending programs. 

    A short history lesson: During the nineteenth and early twentieth centuries, fiscal deficits and surpluses were small in the major industrial countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States), and a chart of fiscal balances would show a fairly stable trend line. WW1 altered the picture radically, as its participants emptied national treasuries and borrowed against the future in a desperate struggle to survive. Shortly after, during WW2, the participants basically repeated the fiscal experience. The normal peacetime condition of near fiscal balance gave way in almost every industrial country to large and obdurate fiscal deficits. 

    Currently, as a planetary economy (world/global) the debt ratio is 350%. On a smaller scale, it would be similar to an individual having an income of 50,000 a year but owes 175,000 to the bank. Not a great situation, but it is manageable. However, this is what is happening today...the individual continues to consume MORE of their income so they have to borrow more money from the bank every year on top of the 175,000 they already owe. The individual is now growing that debt 3x faster than they are growing their income. By the way the economy is starting to slow and the individual is not getting the raises they once did (GDP). Also the interest rates used to be only 1-3% but now they have gone up to 5-7%. Now the interest that they owe is becoming a big chunk of their income! Not good. Lets just say that individual is head of household for their family...and that individual has lots of family. They have brothers and sisters, grandparents, distant cousins who all owe each other money. The individual owes them and the other family members owe the individual. If some of the distant cousins go belly up then no big deal, but if some of the matriarchs or patriarchs of the family go bankrupt then there is a ripple effect. 

This family is a representation of countries around the world. I beg the question, since we have never experienced a global financial collapse (came close in 2008, 2020) why do we assume it will never happen? 300 trillion, 400 trillion, 500 trillion, 600 trillion? How much farther can we kick the can down the road? Maybe once we get there the road will be full of cans. I hope we find other pathways around the deficits.