Crossing the Rubicon: America’s National Debt Crisis

The Rubicon’s waters shimmered under the January sun as Julius Caesar stood on its banks. Behind him, battle-hardened legions awaited his command. Before him lay not just a river but the boundary of Roman law and tradition. As Caesar took that fateful step into the frigid stream in 49 BCE, the splash of his boot was the sound of a crumbling republic.

This bold move was born not merely from Caesar’s ambition but from the weight of golden chains that had long strangled Rome. The once-mighty Republic now gasped for breath, drowning in a sea of debt that stretched from Gaul to Syria. Every conquered province, every triumphant march further depleted the treasury. Generals promised riches to soldiers who hadn’t seen pay in months and Senators whispered of creditors circling like vultures over the Forum. The expansion that fueled Rome’s ascent now threatened to consume it from within.

The fate of Rome is not unique. History is full of examples of great societies brought low by financial mismanagement and debt-fueled expansion. From the collapse of the Spanish Empire in the 16th century to the hyperinflation of Weimar Germany in the early 20th century, the pattern is clear. Like these overextended and indebted societies, America today faces a problem — a $35 trillion problem.

Admittedly, the national debt is not the most riveting topic, although the fates of its victims are epic. I’d rather write about almost anything else, and I’m sure you’re equally thrilled to read about it. But life is full of unpleasant tasks. So, I’ll dive into our debt situation, and hopefully, you’ll stick with me. It might not be our favorite subject, but we can’t afford to ignore it.

When I was in high school, the national debt occasionally reared its ugly head — during election years or whenever our esteemed leaders decided to engage in a game of debt ceiling dramatics. At the start of my freshman year, in the wake of the anticlimactic Y2K scare, the national debt stood at a ‘mere’ $5.67 trillion. Fiscal policy was far from my mind then. However, by the time I donned my cap and gown, my budding libertarian streak had sharpened my focus on government overreach, economics, and foreign policy. As I crossed the graduation stage in 2004, the debt ballooned to $7.38 trillion — an increase that belied the supposed fiscal conservatism of the Grand Old Party.

The Austrian Perspective

As I began independently studying Austrian economics, my unease with our fiscal trajectory deepened. Championed by scholars like Ludwig von Mises and Friedrich Hayek, Austrian economics emphasizes the power of individual choice, the subjectivity of value, and the critical role of spontaneous order in markets. But what truly resonated was its warning about debt: that it’s not just numbers on a ledger but a weight on the shoulders of future generations.

Yet, the debt surged relentlessly as policymakers exploited the Great Recession to justify unprecedented fiscal expansion.

I won’t bore you with the details of the intervening years, but the debt accumulation continued unchecked, no matter which political party held power. According to the U.S. Treasury, as of September 30th, 2023, the national debt had skyrocketed to $33.17 trillion. Less than a year later, it’s estimated to have crossed $35 trillion. To put it bluntly, our representatives add a staggering trillion dollars of debt roughly every 90 days.

Who Cares About the Debt?

A natural question arises: who cares? Many economists (mostly of Keynesian ilk) and partisan commentators argue that things are just fine and the economy is strong. Since no catastrophic events have occurred, perhaps they never will. But this mindset is like floodplain residents foregoing insurance because there hasn’t been a recent flood. It’s a dangerous normalcy bias that ignores the potential for black swan events. Does the absence of past fiscal calamities guarantee future economic stability? History, from the fall of Rome to the Great Depression, screams otherwise.

I typically counter with a few questions of my own. Where could we be if our leaders hadn’t been short-sighted and irresponsible? How much more prosperous might all Americans be if our leaders cared as much about future generations as their reelections? How much more stable would the world be if we didn’t borrow money to fund perpetual wars? 

Recently, it’s been reported that annual interest payments on federal debt have surpassed defense spending. The absurdity of this cannot be overstated. In the first seven months of 2024, spending on net interest reached $514 billion, surpassing the $498 billion spent on defense. This is insane. This is unsustainable. Our defense budget is more than three times higher than China’s, our nearest competitor. America alone accounts for over 40% of global defense spending — and still, we’re on track to dwarf it with net interest payments. To further underscore the gravity of the situation, the Treasury pays an average of $2.4 billion in interest per day!

Before continuing my critique of decades of fiscal mismanagement, it’s important to consider the nature of debt itself. Debt should act as financial leverage — a means to borrow and invest in enterprises or infrastructure that yield greater returns than the debt’s cost. This was once true for America. In the late 1950s and early 1960s, each new dollar of debt generated over $6 in gross domestic product, according to Bank of America. Today, each borrowed dollar produces a paltry $0.58 of GDP. This decline shows we’re no longer getting our money’s worth. It’s a damning indictment of our leaders’ reckless borrowing, and it’s clear we can’t afford to trust them with our financial future any longer.

For decades, the U.S. has been mired in endless military conflicts, often justified by nebulous notions of national security. These wars have siphoned trillions of dollars — and invaluable human resources — away from causes that could have genuinely strengthened our nation. These wars have siphoned trillions of dollars—and invaluable human resources—away from causes that could have genuinely strengthened our nation. Today, we maintain nearly 800 military bases in over 70 countries—a reach even Caesar would envy. Incredibly, even in years without major conflicts, like 2017 and 2018, we still dropped a bomb every 12 minutes. As Will Durant warned, "A great civilization is not conquered from without until it has destroyed itself from within." Our relentless focus on external conflicts is corroding our very foundation, weakening us from the inside out.

Then there’s the healthcare system — a double whammy. The U.S. healthcare system is a bloated, inefficient behemoth, devouring a massive chunk of our GDP. But it’s not just the staggering cost that’s appalling; it’s the dismal outcome. Despite pouring trillions into healthcare, Americans are becoming increasingly unhealthy. Chronic diseases like diabetes, heart disease, and obesity are skyrocketing, further straining an already overburdened system. We’re spending more and getting sicker.

Despite poor outcomes, our politicians keep demanding more money as if that’s the solution. I could endlessly list the broken entitlement programs, crumbling infrastructure, foreign aid that never reaches the needy, wasteful subsidies, and countless other ways our leaders are draining our resources. But instead, let’s focus on how we might dig ourselves out of this mess.

We are now entering a period of fiscal dominance.

As the returns on debt diminish, the government increasingly borrows just to service existing debt and maintain basic functions. This creates a vicious cycle: more debt is issued to cover previous debt, crowding out productive investments and putting immense pressure on monetary policy. It’s a downward spiral that threatens our economic stability and jeopardizes our future.

In a fiscal dominance regime, budgetary policy drives inflation, forcing monetary policy to focus on stabilizing debt. Unlike monetary dominance, where the central bank controls inflation, here it must accommodate the government’s borrowing needs to avoid a fiscal crisis. This results in artificially low interest rates, flooding the economy with money without boosting productivity, and fueling inflation. The central bank’s credibility is destroyed, becoming complicit in reckless fiscal policies and eroding both public and investor confidence.

Solutions to the Debt Crisis

Caesar’s response in Rome was drastic: debt cancellation, land redistribution, and currency devaluation. Sound familiar? These measures provided temporary relief but set a dangerous precedent. In the centuries that followed, Rome’s leaders faced recurring debt crises and repeatedly devalued their currency. By Diocletian’s reign in the late 3rd century C.E., the Roman coin had become so worthless that a new system of in-kind taxation was introduced, fundamentally altering the empire’s economy.

For those of us determined to preserve our Republic, what are the options?

Cut Spending

Like most significant decisions in life, the best solution is often the most challenging and least popular. Drawing from the wisdom of the Austrian school of economics, the first step is to halt the reckless government spending that created and continues to exacerbate the problem. 

During the height of its power, Spain indulged in extravagant military campaigns and lavish expenditures funded by New World silver. The subsequent inflation and debt crises contributed to its eventual downfall. To avoid a similar fate, we must halt reckless government spending. This requires making tough, unpopular decisions to cut expenditures across the board, including in areas traditionally considered untouchable, such as entitlements and military spending. Reducing the size and scope of government will not only improve our fiscal conditions but also increase individual liberty.

Avoid Debt Monetization

Of course, the temptation will be to print more money to pay down the debt — this is the allure of fiat currency. Weimar Germany’s hyperinflation is a stark reminder of the dangers of debt monetization. The roots of the hyperinflation crisis can be traced back to World War I. Germany financed its war efforts through extensive borrowing, resulting in a national debt of 156 billion marks by 1918. The Treaty of Versailles exacerbated this situation by imposing reparations payments on Germany, further straining the economy.

In August 1921, the German central bank decided to buy foreign currency with paper marks at any price, ostensibly to pay reparations. This decision, combined with the government’s continued printing of money to cover debts and reparations, led to a significant increase in the money supply. By December 1922, the exchange rate had plummeted to 7,400 marks per US dollar, and by November 1923, it had reached an astronomical 4.2 trillion marks per dollar. This reckless strategy devalued the German mark to the point of worthlessness, causing economic collapse and severe social upheaval. At its peak, prices doubled every few days, and people needed wheelbarrows of cash just to buy basic goods.

Excessive money printing creates an artificial sense of wealth, resulting in the misallocation of resources and unsustainable economic decisions. To safeguard our economic stability, we must resist the temptation to print money and instead focus on sustainable fiscal practices.

Let Market Forces Work

Allowing market forces to determine interest rates is essential for revealing the true cost of borrowing and fostering prudent fiscal behavior. Artificially low interest rates, as seen in numerous historical contexts, lead to excessive risk-taking and misallocation of resources. Take Japan, for example. Its prolonged economic stagnation can be attributed, in part, to decades of artificially low interest rates that stifled genuine economic recovery.

When interest rates reflect actual supply and demand dynamics, they provide accurate signals about the availability of capital and the associated risks of borrowing. This transparency promotes responsible financial practices, economic stability, and sustainable long-term growth. By letting market forces operate, we ensure that borrowing costs are realistic and that resources are allocated efficiently, preventing the kind of economic malaise that has plagued countries like Japan.

Avoid Bailouts

Allowing unprofitable businesses and investments to fail is essential for economic recovery and resilience. History shows that propping up failing entities prolongs economic pain and stifles innovation. The protracted economic decline of the Soviet Union was exacerbated by its refusal to let unproductive enterprises fail. For instance, the Soviet government continued to support the AvtoVAZ factory, which produced Lada cars. These cars were often of poor quality and did not meet consumer expectations, yet the factory was kept running to meet production quotas rather than market demand. This led to widespread inefficiency and stagnation, as resources were wasted on maintaining these failing enterprises instead of being redirected to more productive uses.

By allowing these entities to fail, resources can be reallocated to more productive uses, fostering a dynamic and innovative economic environment. This natural cycle of creative destruction encourages entrepreneurship and innovation, ensuring that resources are used efficiently. In the long run, avoiding bailouts creates a more resilient and competitive economy, capable of sustained growth and prosperity.

The Power to Change Course

Reflecting on history’s lessons and our nation’s current trajectory, it is painfully clear that we stand at a critical crossroads. Just as the Roman Republic was crushed under the weight of its ambitions and debts, we are on the brink of repeating this tragic narrative if we ignore our mounting national debt and reckless fiscal practices. However, we have not crossed the Rubicon just yet. We can still turn back and fix this mess.

Our nation’s true strength does not stem from military might or economic dominance but from our unwavering commitment to freedom and individual liberty. It is time to act decisively, reclaim our financial future, and ensure we do not become another cautionary tale of a once-great civilization undone by its own excesses.

The power to change course lies in our hands. Through the democratic process, we can elect leaders who prioritize fiscal responsibility and long-term sustainability over short-term gains and political expediency. The choice is stark: rise to the occasion and chart a path toward sustainability, or let our unchecked ambitions drive us into inevitable decline.

The stakes have never been higher, and the urgency for action has never been more pressing. Each of us must reflect deeply on our responsibilities and the legacy we wish to leave. Our future hangs in the balance, demanding a return to fiscal sanity and a renewed commitment to the principles that once made us strong. Let us use our votes wisely to steer our nation toward a prosperous and sustainable future.