How the West breached Ferguson’s law. By Alexander Downer in The Australian.
History tells us that when a great power’s expenditure on servicing its debt exceeds its expenditure on its defence force, it is heading for inevitable decline. This is sometimes called Ferguson’s law. It is a pattern that has repeated throughout history. …
Australia has no debt in 2007 (though the states had debts):
Australia went into the GFC with no net government debt and came out of it with $373bn worth of debt. And then came Covid. In 2019, Australia’s debt was $542bn and by 2022 it had blown out to just under $900bn. This financial year it’s expected to reach $1 trillion. That’s a long march from no debt to $1 trillion since the defeat of the Howard government in 2007.
I know most people think they couldn’t care less about this, but they should. This mounting pile of debt must be serviced. These days, the Australian government and the state governments together spend more than $50bn a year on interest payments on their growing debt.
To put that in perspective, that’s close to the same amount we spend on national defence.
Europe:
In Europe the situation is much worse. Last year the British government spent about $200bn on interest payments on government debt and about $130bn on national defence. Or if you take the whole of the OECD, in 2024 they spent $US2.1 trillion on interest on their debt but only $US1.2 trillion on military equipment.
US:
Even the US is culpable. In 2024, the US spent an eye-watering $US882bn on interest payments, which was as much as it spent on national defence.
Decades of bubble and money printing (once we broke the last constraint of gold in 1971, then defeated the 1970s inflation with +15% interest rates) led to huge tax receipts on profits from rising asset prices, and vast quantities of brand new borrowed money (fact: money is created by the act of borrowing in our fiat system — dollars are technically IOUs):
It was fair enough for Donald Trump to demand the Europeans and other allies, such as Australia, spend more on defence. But the problem is they have already blown their dough on expanded welfare entitlements and windmills.
Of course they could increase taxes, and if they did that it would slow the growth of their economies. The thing is, if you push taxes beyond a certain point, then the economy will stop growing and, despite the higher taxes, revenue will start to decline.
So, for the liberal democratic world, it has almost reached the peak of effective taxation. And it also has started to get close to reaching the peak of borrowing. …
Uh oh. No more room. No wonder the prices of gold and silver are rocketing.
It’s depressing, but overall the West has breached Ferguson’s law.