A recent New York Post piece floated an old idea with a modern twist: cancelling the U.S. national debt, framing it as “An Ancient Sumerian Solution to Our $40 Trillion Debt.” The argument treats debt as a purely human-made accounting system that can simply be reset. While money is indeed a social construct, claims on real resources are not. Canceling $40 trillion in public debt would not make those resources disappear—it would redistribute who owns them.
Imagine the impact on pension funds, individual retirement accounts, insurance companies, and households that hold government bonds. The losses would also hit currency holders through higher inflation. This is one reason gold has been trading near $4,400–$4,700 per troy ounce (31.1 grams) in recent months—investors are seeking an inflation hedge and a store of value outside the traditional system.
The real question is not “Can we cancel the debt?” Of course, a government can attempt it. The better question for anyone focused on financial independence is: “Who gets robbed when we do?” Historical Precedents Offer Caution, Not Comfort.
History provides a few instructive examples:
In ancient Athens, Solon’s seisachtheia (~594 BC) canceled many private debts, banned loans secured by personal freedom, and freed debt slaves. It helped prevent immediate social collapse and is credited with supporting later economic recovery and democratic institutions. Even so, Solon had to leave Athens for a decade, elite resistance remained strong, and deeper tensions continued.
Later attempts turned violent. Spartan king Agis IV (~241 BC) ordered debt records burned as part of broader reforms that included land redistribution. He was arrested, given a sham trial, and executed—along with his mother and grandmother. In Rome, the Gracchi brothers pursued land and social reforms that threatened the creditor class and were ultimately killed.
In the modern era, the 1980s Latin American debt crisis offers a clearer parallel. After Mexico triggered the crisis in 1982, 16 Latin American countries and 11 other developing nations rescheduled their debts. The result was not a rapid recovery. Latin America endured a “lost decade” of high unemployment, falling real incomes, cuts to public services, and stagnant or negative growth. Research has shown that after sovereign defaults, access to international credit often disappears for years—the average default lasted roughly nine years.
Why Modern Governments Prefer Stealth Over Open Cancellation
U.S. gross national debt has reached $40 trillion. The trajectory looks unsustainable under current primary deficits, interest costs (already exceeding $1 trillion annually), and the growth of entitlement programs. Strong economic growth alone has not closed the gap. Large tax increases or deep spending cuts remain politically difficult. Inflation functions as a quieter alternative—a stealth tax that erodes the purchasing power of savers and wage earners.
This is why most Western governments prefer less transparent tools: inflation, financial repression, higher taxes, longer debt maturities, currency depreciation, and periods of negative real interest rates. These methods transfer wealth from creditors to debtors without the dramatic announcement of “we are wiping the slate clean.”
A sudden, unilateral modern debt jubilee would amount to a large wealth transfer from savers and future borrowers to current debtors. It would damage the credibility of U.S. Treasuries as a near risk-free asset and likely raise the cost of capital across the economy—making mortgages, business loans, and long-term investing more expensive.
What This Means for Your Financial Independence Journey
You cannot simply burn the national ledger in the town square and expect the rest of the financial system to function normally. There is also the risk that other governments would follow suit, amplifying the damage.
For individuals focused on building wealth and achieving financial independence, the practical takeaways are straightforward:
§ Treat inflation as a permanent risk and maintain an inflation hedge (whether through productive assets, real estate, or a measured allocation to hard assets).
§ Avoid assuming that government bonds will always remain risk-free stores of value.
§ Prioritize low personal debt, consistent investing in diversified long-term assets, and strategies that protect purchasing power over decades.
The shadow of $40 trillion in national debt is real. There is further additional risk that the governments around the world will do the same. Understanding how governments have historically dealt with such burdens—and who ultimately pays—can help you make clearer decisions on your own path to financial independence.
No comments:
Post a Comment