The Ominous Message in 200 Years of Global Public Finances

Tyler Durden's picture

Submitted by F.F.Wiley via Cyniconomics blog,

After our recent article showing the history of non-defense budget balances for large, developed countries, some readers wondered how our results might change with defense spending included.

Here’s a new chart showing total budget balances:


fiscal balance with defense

As in the first chart, we started in 1816 with four countries (the U.S., U.K., France and Netherlands) and then added seven more at different points in time, while weighting each country by its GDP. (Click here for data sources and more details.)

New chart, same story

The message is basically the same, regardless of whether you isolate non-defense budget balances as in the earlier chart or look at total balances as above.

That is, current fiscal risks are unlike any the world has ever seen.

Echoing our thoughts from the earlier post:

The [growing deficits of the past 50 years] suggest that we’ve never been in a predicament comparable to today. Essentially, the world’s developed countries are following the same path that’s failed, time and again, in chronically insolvent nations of the developing world.

Look at it this way: the chart shows that we’ve turned the economic development process inside out. Ideally, advanced economies would stick to the disciplined financial practices that helped make them strong between the early-19th and mid-20th centuries, while emerging economies would “catch up” by building similar track records. Instead, advanced economies are catching down and threatening to throw the entire world into the kind of recurring crisis mode to which you’re accustomed if you live in, say, Buenos Aires.

The diminishing ability of wars to explain public finances

The new chart shows more clearly how the purposes of public borrowing have evolved. In the 19th and early-20th centuries, governments borrowed mostly to fund wars. In fact, any military history is incomplete without consideration of warring nations’ access to capital. You can argue that government borrowing not only enables wars, but that the ability to borrow heavily is a major determinant of whether your army wins or loses, more important in many cases than military prowess.

(Niall Ferguson claims exactly this in his bestseller, The Ascent of Money: A Financial History of the World. Are you interested in the Napoleonic Wars, U.S. Civil War and World War 1 – three periods of significant public borrowing as shown in the chart? Ferguson links the ultimate outcomes of each of these wars to the victors’ superior access to government bond investors.)

Fast forward to today, and deficits have broken free of the costs of tanks, bombs and warplanes. Considering current public finances, it’s hard to imagine another widespread war that doesn’t lead to financial mayhem. A surge in military spending would surely end any hopes that large, developed nations won’t eventually be forced into defaults and/or wealth confiscation.

Worse still, it’s looking more and more as though we’re headed for disaster even without a future spike in military spending. The risks of a severe fiscal crisis are obvious in our earlier chart showing non-defense budget balances, and they’re just as apparent with defense spending added back in.

Bonus chart

The chart below separates budget balances into two pieces – the non-defense portion (as in the earlier post) and defense spending. We’ll add more detail in the future, including a country-by-country breakdown of the underlying data.

fiscal balance ex-defense 2

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willpoi's picture


zaphod's picture

The difference this time is that we are on a funny money system and not a sound money system.

In the 1800s there was little inflation, so new debt had to be paid back in full.

But over the last 50 years we've lived in a world of constant monetary devaluation, so new debt will not be paid back in full value but rather at a deflated value 30 years from now. 

It's all good until the dollar breaks, then watch out for the greatest deflationary event anyone has ever seen in real terms (while prices rise in nominal terms)

GeezerGeek's picture

Era #2 includes the so-called War on Poverty. What, you say it wasn't really a war? Well, in very general terms and based on things I've read, this war has expended around 16 trillion. And the total debt, mostly incurred over the same timeframe, is $17 trillion. If we hadn't engaged in that hopeless 'war' we would be close to debt free. Or are my numbers wrong?

401K of Dooom's picture

Ahem,what about the mandatory outlays such as the interest on the national debt, Medicare, Medicaid and OASDHI (also known as Social Security?)  Yep, just another Obamaturd to deal with.

economics9698's picture

It's all goood until the trillions printed up hit Main Street.

Vampyroteuthis infernalis's picture

Main St is not going to see those trillions. Banksters swimming in it until ropes on lamp posts come.

NotApplicable's picture

Until the Money Laundering Act is modified to include all cash RE purchases, we will see Main St. sold to those close to the banksters.

max2205's picture

That chart is wrong... Non defense spending is trough the roof


Flakmeister's picture

Zaph, with all due respects, when the fuck was any debt paid off in full in the good old Golden Days?

Defaulted on and written off maybe, but sure as shit, never paid off... 

And yeah, Andrew Jackson may have pulled it off but that was a pittance, even then... And it lasted all of two years....

And that is the exception that proves the rule...

TheReplacement's picture

Time for a Debt Repudiation Revolution.  We do not recognize any debt that is owed due to misrepresentation by banks/bankers or governments/politicians.  If you owe me then you still owe me.  If I owe you then I still owe you.  Unless, of course, either of us is a politician or a banker.  Constitutional government and rule of law for all.  Prosecutions for the criminals who have clearly been violating our laws and their oaths for far too long.

Suggest that to most anyone and they would be okay with it.  Suggest it to a politician or a 1%er and you will officially be branded a two headed right wing extremist. You'll have NSA drones deployed to discredit you.  You will be vilified and probably framed for some absolutely hideous crime that, again, the vast marjority will find anhorent and will so then want to see you dead, or alive as long as they can watch it live on youtube.

economics9698's picture

Yea I guess when your central bank is leveraged 74-1 you could say your days are numbered.

NotApplicable's picture

Nah, they'll get bailouts and go double or nothing...


0b1knob's picture

The great war today is the war governments of the world are waging against their own citizens.

Oldwood's picture

Do we get uniforms? I got everything else.

GeezerGeek's picture

Your uniform will have FEMA across the back of the shirt. Your uniform may not include trousers, thus facilitating those BOHICA moments. 

Oldwood's picture

Exactly! Why is this so hard for everyone to understand! We have finally done it! We have reached Utopia where we don't need no stinking jobs and we don't have to pay our debts and nobody, I mean nobody can call us the N word.

What, its not what your were expecting? Really?

Sorry but this shit is IT.

Now we get to see what happens NEXT.

Progressives will never have enough. Every victory they achieve simply wets their lips for even more. They have never explained what comes after Utopia, where we progress to from there. What IS the end game? How will we know when we are there? If we can change global climate, what do we want it to be?

NOTaREALmerican's picture

Re:  What IS the end game?

This is the end-game, the top 1% won.   The top 10% helps the top 1% keep their winnings.   The top 20% helps the top 10% help the top 1% keep their winnings.

Re: How will we know when we are there?

We're there.   It's where the "Conservatives" and "Progressives" both wanted to be, and spent the last 60+ years working hard to acheive: a large centralized government run by the very wise people imposing their will on the population.    All they disagree about is which Team is wiser:  the kick-ass daddy facsist or the smothering-mommy socialists.   


Not My Real Name's picture

It's where the "Conservatives" and "Progressives" and Progressives wanted to be, and spent the last 60+ years working hard to acheive: a large centralized government ...

There ... fixed it for ya.



h0oS's picture

I'm getting board of waiting for this shit to pop. Off to cure my boardroom with some consumer shopping for the shiny shiny...

Rafferty's picture

Me too. I've been waking every morning for the last three years to the hope/expectation that it's popped.  But nooooooooo, it just keeps rollin' along, like Ole Man River.

Bonapartist's picture

did someone mention Bonaparte? he abhorred debt and the money changers- the reason for the Louisiana Purchase was he preferred the pay-as-you-go plan- yet another reason that he had to be shown the door. Financing wars - a Bank of England/City of London/Red Shield favorite for centuries.

NOTaREALmerican's picture

My socialism isn't socialism, it's an investment in our children's future!

Creepy Lurker's picture

TPTB have been attempting to force a World Government via economics. I'm sure thier models all said it would work..

Flakmeister's picture

When you loose your ability to "grow your way out it", a lot more than the public finances will unwind.....

Shit is starting to get very real...

Overfed's picture

Alright. Who are you, and what did you do with the real Flakmeister?

Flakmeister's picture

He never left....

And how was the above statement any different from what I have been saying here for nigh on 4 years...

Overfed's picture

Seemed an odd statement to be made by someone who espouses PC and buys the official government version of history. Guess I don't know you as well as I had thought. You even got a greenie from me.

Flakmeister's picture

You certainly don't know the half of me. I've been one of the straightest fucking shooters here for nearly 4 years as Flakmeister and nearly 6 months previously Anonymously. It bothers me not a whit that people can't handle what I have to say. I call 'em as I see 'em....

And you will find few old hands here that will dispute that I am the goto oil/energy expert here at the Hedge. 

As for calling people cunts, it works the first time, then it gets real tired, real fast. I ain't offended in the least, more like bored by the complete lack of imagination...

Like the juveniles here that have a picture of an obviously fake pair of tits as an avatar. It says to me that they ain't serious. Or that they crave attention and that is the only way they know to get it... Much like JCB and his complete and utter infatuation with Jews and Zionist and what not....


And there is nothing I love better than skull fucking a bullshitting blowhard here...

detached.amusement's picture

We enjoy showing what a jackass you are on the AGW front - its just that you keep acting like you've never gotten the fug burned out of your argument before, hence the reason I compared you to the black knight.


The Flake Knight, what a ring to it.  What are you going to do, bleed on me? 


Allright, we'll call it a draw - meaning go ahead and keep thinking you had an argument, keep on ignoring when you get burned.  Luckily for you, there's basically no consequences for ignoring that reality online.

detached.amusement's picture

yup, that's about on par with the rest of your "climate" arguments

Flakmeister's picture

I saw this and I thought of you... It's a perfect fit

"Scepticism is an essential part of scientific endeavour. It demands all claims are treated as unproven until evidence and experience either confirm or falsify them. Denialism, by contrast, is the stubborn and persistent refusal to acknowledge what the evidence shows beyond all reasonable doubt." 

Ophelia Benson 

detached.amusement's picture


In general, we look for a new law by the following process: First we guess it; then we compute the consequences of the guess to see what would be implied if this law that we guessed is right; then we compare the result of the computation to nature, with experiment or experience, compare it directly with observation, to see if it works. If it disagrees with experiment, it is wrong. In that simple statement is the key to science. It does not make any difference how beautiful your guess is, it does not make any difference how smart you are, who made the guess, or what his name is—if it disagrees with experiment, it is wrong. - Richard Feynman


But where you run into issues is that you interpret any data whatsoever as supporting your wildly unproven hypothesis - one which you dont even consider the possibility of it being incorrect.  That happens when your methods rely heavily on statistical methods and you have no statistical expert on your team to verify if your applications of statistics are sound, or if they are playing word games with numbers.


One would think that when you have a guess and its shown to not match despite decades of tweaking and new measurement, one would admit that something rather fundamental is amiss in the model.


Nope!  Co2 is still king!  LOL...

lasvegaspersona's picture

I would argue that rather than rot, the outcome was inevitable. After WW2 the USA had 22k tons of gold. They blew through 2/3 of that in 20 years but realized that they could use (abuse) the extrordinary privelege of haveing the reserve currency to get the riches of the world at half price. If the Ds would not use it the Rs would. Guns and butter for America and the rest of the world pays. Once the population saw that deficits ddn't matter there was no stopping that train until it went off the rails. This is where we are now. The temptation could not be resisted. It had to play out. Only when a junkie runs out of dope does he reform. We were bad but the rest of the world must have gotten something out of it too or it would have ended sooner.

Oldwood's picture

Or the junkie goes on a crime spree killing and robbing anyone who he thinks he can overpower to feed his habit. In our case I'm betting on the crime spree.

NOTaREALmerican's picture

Re:  We were bad but the rest of the world must have gotten something out of it too or it would have ended sooner.

Good post.   The problem is too...   The rest of the world saw how good that debt high was.    We were really flyin' in the 60's, 70's, and 80's.    Who wouldn't want a hit of that wonderful debt drug.

Now, if ONLY "they" can keep it going until I'm dead...

Flakmeister's picture

US gold holding peaked in the mid 1950s....

Did you think that the rest of the world was simply going to wallow in the destruction of WWII or did you think the the US golden age would last forever without competition?

For the record, budget deficits in the late 60s early 70s were typically 2-3% of GDP... Very much in line with previous years...

However, exploding oil imports and the French cashing in whatever dollar holdings required Nixon to close the window...

It was the oil, bitchez...

Errol's picture

Now that's the Flakmeister we all know and love!

While we're on the subject, unlimited fiat currency was only part of the world's mass delusion that we could have it all, and have it now.  A torrent of cheap oil, as close to "something for nothing" humanity will ever see, convinced humanity that they could have something for nothing for an extended period of time.

That period of time is coming to an end, and the narcicists' temper tantrum will be the stuff of legends.

tickhound's picture

Along these lines: Red Cross rep handing this flier out approaching DC Metro.

Global Refugee Simulation & Conference
GW Campus

What would you do if you were forced to leave your possessions, your home, and everything you had ever known? Where would you go? Who would you trust? What lengths would you go to in order to keep yourself and your family safe?

The Global Refugee Simulation & Conference taking place March 29-30 in Washington, DC, will bring this challenge to life for you. For one day, you must fight to survive against impossible odds. You must strive to maintain normalcy while escaping political conflict and violence. The two-day event consists of a Simulation on March 29th coupled with a Digital Conference on March 30th.

Ticket prices are $20, and cover the following:
Round trip transport from Washington, DC to Manassas Virginia
Participation in the world’s largest refugee simulation
Materials necessary for taking part in the simulation
VIP access to Sunday’s digital conference

For questions on registration and participation, contact Joe Gibson at Participants must be over the age of 18.
Date: Saturday, March 29, 2014
Time: 10:00 AM - 6:00 PM

nightshiftsucks's picture

It looks like the shit is getting real,thanks for the link.

Bastiat's picture

The catch is that you end up in a FEMA camp . . .and stay there.

Bohm Squad's picture

What?!?!  No free shower when I get there???

NotApplicable's picture

I don't understand how a one day simulation is going to have much of an impact, unless the cops decide to Tazer the lot of them.

tickhound's picture

All in the good spirit of "conditioning" I suppose... some data collection... choice "rendezvous" locales... Wipe away your worry for 20 bucks.

lostintheflood's picture

Global Refugee Simulation & Conference
GW Campus

i would go to that if it was anywhere near me....i'll bet there will be opportunities to see what others are thinking...