Dear researcher, I’ve got stuck in a research rut and have been reading a lot about US financial and credit policy. In the process, I came across a YouTube video that draws a historical comparison between the Roman Empire, Spain, the United Kingdom and the USA. (https://www.youtube.com/watch?v=OuIJlYAo-Bc) Brief summary of the video: One example cited was Spain around 1550, whose excessive government spending and debt led to its loss of power. A similar story unfolded in Great Britain in 1922, when the pound sterling was still the reserve currency. According to the video, the beginning of the end came when the UK printed more money than could be backed by its gold reserves. Ultimately, in order to defend itself against Germany during the Second World War, the UK took on a heavy debt burden. Since 1944, following the Bretton Woods Conference, the US dollar has been the reserve currency and every US dollar was backed by gold. However, in 1971 it was announced that the US dollar would no longer be backed by gold; in other words, it was declared fiat money. Meanwhile, US expenditure has exceeded its revenue. This is particularly true of its military spending. Following the 2008 financial crisis, the US government introduced a policy of quantitative easing to stabilise the economy. In 2020, a similar approach was taken during the COVID-19 pandemic. The arguments put forward were as follows: - excessive money printing - rapidly rising national debt My specific questions are: To what extent is it likely that history will repeat itself in the US? Does the depreciation of the US dollar indicate a permanent weakening of the US economy and its position of global power? My view is this: I doubt that the US government is at risk of collapse. Nevertheless, do you think it is very likely that they could lose their global influence or military power because the US dollar is depreciating and their economy cannot keep pace with that of China or India? Many thanks for your reply!
Public debt as an indicator of various factors
A rapid rise in public debt often (though not automatically) points to internal weaknesses within a country. It appears, then, that the government is spending more than it is taking in. On the expenditure side, this may, for example, reflect polarisation and unresolved conflicts over the distribution of wealth within a society. If government revenue is disappointing, the reason may lie in economic weakness.
… as a symptom of weakness
A rise in public debt would then, so to speak, be a symptom of an underlying weakness. Just like a high fever.
… as a warning sign
If a world power’s national debt is growing sharply, this should be a warning sign that this world power may be losing its standing.
The rise in US government debt should therefore be such a warning sign. But decline is not inevitable.