Sam Vaknin
3 min readJan 8, 2024

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Public Debt: The Next Great Depression

Here are some heartwarming statistics, based on data published by the European Commission:

“The EU’s aggregate deficit-to-GDP ratio decreased from -4.7 % in 2021 to -3.3 % in 2022. The debt-to-GDP ratio decreased from 87.4 % at the end of 2021 to 83.5 % at the end of 2022. At the end of 2022, it ranged from 18.5 % in Estonia to 172.6 % in Greece.

European Union Government debt accounted for 83.1 % of the area’s Nominal GDP in June 2023, compared with the ratio of 83.4 % in the previous quarter. It was at an all-time high of 92.0 % in March 2021 and a record low of 62.3 % in December 2007.

At the end of the second quarter of 2023, the general government gross debt to GDP ratio in the euro area (EA20) stood at 90.3%, compared with 90.7% at the end of the first quarter of 2023.

Compared with the second quarter of 2022, the government debt to GDP ratio also decreased in both the euro area (from 93.5% to 90.3%) and the EU (from 85.9% to 83.1%).

At the end of the second quarter of 2023, debt securities accounted for 83.4% of euro area and for 82.9% of EU general government debt. Loans made up 13.8% and 14.3% respectively and currency and deposits represented 2.8% of euro area and 2.7% of EU government debt. Intergovernmental lending (IGL) as percentage of GDP at the end of the second quarter of 2023 stood at 1.6% in the euro area and 1.3% in the EU.”

The corresponding picture in the USA is far gloomier:

The total federal debt amounted to 34 trillion USD at yearend, about 1.2 times the country’s annual economic output and higher than even in the wake of the Great Depression and World War II.

Republican tax cuts coupled with ambitious Democratic climate, healthcare, and infrastructure initiatives plunged the USA into a sea of crimson red. Low interest rates, growing employment, and miniscule inflation masked the growing problem, having kept debt repayments stagnant and sustainable even as the economy was humming along.

In November 2023, Moody’s was the first to take notice of the impact that skyrocketing inflation and interest rates would have on the manageability of the debt mountain. The rating agency reduced the outlook for US debt to negative from stable.

Both Janet Yellen and Paul Krugman sounded the alarm. Krugman wrote in an op-ed in the New York Times: “Serious deficit reduction, a bad idea a decade ago, is a good idea now”.

Interest rates on inflation-protected government bonds have soared from near zero a decade ago to more than 2% currently. Refinancing deficits and past borrowing has thus become considerably more expensive.

Theoretically, unemployment having dropped from 8% in 2010 to 3.7% last year should allow the government to cut back its spending. But inflation has become a major risk. Slashing the federal budget pumps money into an already overheated economy and props up multiple asset bubbles.

Inevitably, in the irredeemably polarized political scene in the USA, Democrats and Republicans fail to even discuss a joint plan of action. The former want to tax the rich, the latter want to cut entitlements such as Medicaid and so, effectively, tax the poor.

The real remedies — increasing taxation on all households, slashing defense and Medicare spending — are off the table in an election year and in the face of multiple geopolitical challenges and threats.

Time is running out. Urgent steps are needed. In their absence, the USA will find itself mired in yet another grave recession — or, possibly, worse, go bankrupt. Should this co-occur with a meltdown of China’s Potemkin economy, the world would face the Greatest Depression. Multiple mini-Hitlers already eagerly await precisely this outcome.

Sam Vaknin, Ph.D. is a former economic advisor to governments (Nigeria, Sierra Leone, North Macedonia), served as the editor in chief of “Global Politician” and as a columnist in various print and international media including “Central Europe Review” and United Press International (UPI). He taught psychology and finance in various academic institutions in several countries (http://www.narcissistic-abuse.com/cv.html )

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Sam Vaknin

Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant Self-love: Narcissism Revisited and a Visiting Professor of Psychology