The approaching debt monster poses a greater threat than global war. By Alexander Downer in The Australian.

By global standards, Australian debt isn’t alarming. Federal government debt is only 34 per cent of GDP. Mind you, if you add state government debt as well, which amounts to about $650bn, then total government debt in Australia is a more concerning 55 per cent of GDP.

In the US, debt is more than 124 per cent of GDP; in France, 121 per cent; in Britain, about 100 per cent. Even in more fiscally responsible Germany it has blown out to 65 per cent. …

So why do we pay more interest?

In Australia’s case, the benchmark 10-year government bond yield is about 5 per cent. That is the interest rate the Australian government has to pay on its borrowings. The US rate is lower at 4.4 per cent, the British 4.6 per cent and Germany a mere 3.3 per cent.

So there is a problem. Australia needs to set the interest rate at a higher rate than comparable countries.

Indeed, what is noteworthy is that during the past four years, the interest rate on Australian government bonds has risen from 3.5 per cent in August 2022 to 5 per cent today. In other words, lenders want a higher return now because of concerns about growing government debt, the weakness of the Australian dollar and persistent inflation in Australia.

Debt repayment is already overshadowing other areas of expenditure, and it’s only growing. Worse, times have changed and people haven’t twigged yet. In the 40 years from 1982 to 2022 the trend was for decreasing interest rates, so asset prices soared (which boosted the tax take and welfare ballooned). Now we are in the other half of the Kontradieff cycle, and the trend is for rising interest rates until about 2060 or 2070.

The Australian government is spending more than $40bn a year just on servicing its debt. Add to that about $25bn a year being paid by the state and territory governments, and in total Australian governments are spending $68bn a year just financing their debt.

That is more than the federal government spends on defence, more than it spends on education, and is about 64 per cent of federal spending on health.

In the case of Britain, its government spends almost twice as much on servicing debt as it spends on defence. …

Well, yes:

The moral of this story is that all governments, including our own, need to stop spending more than they earn. The populist passion for expanding welfare entitlements and diverting resources into building windmills is slowly strangling our economies. And if debt continues to grow, we could confront a global financial crisis.

Asset prices and welfare are going to shrink in real terms (relative to wages), as interest rates rise, for the next few decades.

Or the paper currency system will blow up altogether in an inflationary storm à la Germany 1922, but surely our ruling class wouldn’t be that irresponsible.