wsj.com

The US is in the stage—which I call Stage 5—when there are bad financial conditions and intensifying conflict at the same time the leading empire still has other great strengths (e.g., technology and military) that are declining on a relative basis.

Washington viewed the restoration of American credit as the country’s foremost political need, and he supported loans and heavy taxation to attain it. While fighting Great Britain, he pondered the source of its military power and found the answer in public credit, which gave the enemy inexhaustible resources. “In modern wars,” he told Joseph Reed,

excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is.

This squares solidly with the work done by Rogoff and Reinhart, showing that when the debt of a country reaches about 100 percent of GDP, there is a reduction in potential GDP growth of about 1 percent. As we wrote earlier, government debt and spending do not increase productivity. That takes private investment. And if government debt crowds out pr