012 Debt Jubilees and Hyperinflation: why history shows this might be the way forward for us all

Summary: Government debt levels in the United States, European Union and Japan are at all time historic highs, after decades of borrowing money to pay for regular annual expenditures, regular military interventions and multiple bailouts. Working out what will happen next is a matter of great speculation, but history can provide us with some pointers about what we should be looking out for, two of which are debt jubilees and hyper-inflation. Much of the government debt accumulated over time will never be repaid and will be rolled over indefinitely. However, interest on the debt does need to be repaid. As governments become increasingly indebted, interest payments as a percentage of government expenditure will increase rapidly. The US CBO expects that by 2025 US interest payments combined with Medicare, Medicaid and Social Security will be so large that they will theoretically consume 100% of all federal tax income receipts. Clearly, this situation would make no sense and you could expect a general tax payer revolt long before this happened. Citizens are highly unlikely to be willing to pay taxes if they got nothing in return: no schools, no roads, no hospitals, no defence, no jails and no legal system. Unfortunately, unlike other government expenditures, such as on defence, education and social security, interest payments need to be repaid. If they are not, the government will default on its debts, making it harder to borrow more money and to roll over the debt that it already has. So in a situation where it will be both impossible to pay the interest and impossible not to pay the interest, what will happen? One answer is to artificially get rid of the debt. Historically there have been two main ways of doing this: debt jubilees and hyper inflation.