Debt has moral implications, and in denying this, we’re choosing a rendezvous with Nemesis
Let’s start with a household analogy. A married couple has four fine children, and since expenses are higher than income, they borrow money in their children’s names to fund their lifestyle and investments. Once the offspring reach 18 years of age, the debt their parents borrowed is theirs to service.
The offspring didn’t get a say in how much money was borrowed or how it was spent, but the debt is now theirs to service (i.e., pay the interest) for their entire lifetimes, as the debt is simply too large to pay off with conventional wages.
The economy changed, and since wages don’t go as far and costs keep rising, the four offspring borrow in their own children’s names to afford the basics of a middle-class life.
The parents are now comfortably retired, drawing on their investments bought with borrowed money. The two generations behind them are now debt-serfs who funded their own lifestyles by borrowing even more money. Since the kind of house their parents bought for 3-times-income is now 6-times-income, the debt required to own a house and fund what is considered the minimum middle-class entitlements is multiples of their parents’ borrowing.
Is anyone willing to call this offloading of ever-expanding debt onto future generations wrong, as in morally wrong, or have we lost the vocabulary and ability to declare the offloading of debt as morally disgraceful, a line that should never have been crossed?
Debt that cannot be extinguished and that is offloaded onto future generations is a manifestation of moral decay, a decay of the moral foundations of the economy and society that is terminal.
So here we are, cheering on a big reduction in the Fed Funds Rate to encourage an expansion of debt, as more debt means more spending and that means more taxes and corporate profits. The manipulation of and the financial machinery to encourage more debt is viewed as bloodless, absolutely devoid of moral judgment: when it comes to “growth” of asset prices, spending, taxes, and profits, there is no wrong, as “growth” is the only good anyone cares about.
This is the perfection of moral decay. Offloading debt onto future generations–money borrowed to prop up a self-serving status quo that focused on expediencies, not future consequences–and then telling the debt-enslaved generations, “we’ll inflate away the debt, and your wages will buy less and less, but no worries, we’ll just borrow more to pay the interest due”–how is this not morally repulsive?
Here is Federal debt as a percentage of Gross Domestic Product ( ). This is a better measure of consequences, for it illustrates that the Federal government’s ability to counter a deep recession by borrowing and spending trillions of dollars is now limited by extreme debt levels.
Those who track the history of government debt generally draw the red line at 100% of GDP, so 120% is already deep in the danger zone. History is rather decisive: any attempt to add trillions in additional debt at these levels has zero chance of working as intended, i.e., a pain-free way to boost “growth.”
Note the debt-to-GDP ratio actually declined during both the stagflationary 1970s and the 1990s Internet boom. In both eras, the economy was still largely organic, i.e. unmanipulated enough that natural forces (supply, demand, risk aversion, writedowns of bad debt, etc.) could work through excesses of speculation and debt and restore not just balance sheets but legitimacy.
The Federal Reserve no longer trusted the system’s self-correcting capacity and leaped into full-blown manipulation of financial and mortgage markets in 2008-09. The debt-to-FDP ratio soared from 60% to 100% in the post-Global Financial Crisis (GFC) “save” of the Federal Reserve, which inflated the money supply and pushed ZIRP (zero interest rate policy) and QE (quantitative easing) to boost borrowing.
As a result, private-sector borrowing also skyrocketed. Now that households and enterprises have borrowed up to their capacity to service debt, their ability to “borrow their way to prosperity” is also constrained.
Here is the total debt, public and private (TCMDO). In Q2 1975, total debt was $2.5 trillion. If this had tracked inflation, it would have reached $15 trillion by Q2 2025. ($1 in Q2 1975 is $6 in Q2 2025.) (BLS Inflation Calculator)