The Deadly Spiral of Debt: A Legacy that Shackles the Future
June 17, 2025
By Daniel Mayor
«A kingdom that lives on credit sells its sovereignty«. This phrase, which might seem like a warning from ancient times, is more relevant today than ever. Public debt, far from being a simple financial instrument, has become an invisible chain that threatens to drag down even the most powerful nations.
When a country systematically spends more than it takes in, it resorts to debt. But that debt does not disappear: it accumulates, it is rolled over and, most worryingly, it is inherited. And it is not paid by those who incurred it, but by future generations. It is a silent but profound form of intergenerational injustice: one generation consumes and another pays. Infrastructures are built, campaigns are financed, deficits are covered… but with borrowed money. And when the time comes to pay it back, those who borrowed it are no longer there. There are their children. And their children’s children.
It is true that public debt matters – and matters a lot – but it does not work like private debt. The capital is not amortised: it is simply refinanced. Why? Because states do not die. Behind each contributor comes another. So when a debt issue matures, a new one is auctioned. What really matters is the cost of that debt. If the interest rate paid is higher than the growth of the economy, debt as a percentage of GDP automatically grows, even without new deficits. This is the real critical point from a macroeconomic point of view.
Confidence in the continuity of the state allows markets to accept this practice. But that does not mean that debt is harmless. In fact, it can become a trap.
The United States, the world’s largest economy, today operates with an annual deficit of 7 % – in times of full employment and without a formal economic crisis. In other words, its imbalance is not cyclical, but structural and political. In the last decade, tax revenues grew by 60 %, but spending grew by 95 %. The result: the national debt has reached 37 trillion dollars, which represents 123% of the Gross National Product. Most alarmingly, a growing part of that debt is no longer wanted by investors. The Treasury is forced to offer higher yields or increase money printing – which it is not doing. Both options are inflationary. Thus begins the debt death spiral.
In the US, raising taxes is politically unfeasible: it is not on the table of public debate. For example, during Trump’s first term, tariffs were used as a substitute for a consumption tax increase. But because they can be attributed to foreigners, they are more palatable to the public. These measures, however, end up hurting productivity and competitiveness in the long run.
In Europe, the situation is different, but no less worrying. Germany, with its historical aversion to debt – the word schuld means both ‘debt’ and “guilt” or ‘moral failing’ – has traditionally been more prudent. Even there, however, social, demographic and geopolitical pressures are pushing it to loosen fiscal limits to cope with investments.
The real issue, however, is not technical. Is it fair to mortgage the future to maintain the current standard of living? Is it responsible to reduce taxes while maintaining deficits of 7%, just to avoid political tensions? Is a system in which there are more and more beneficiaries and fewer and fewer taxpayers sustainable?
A truly fair country is not one that promises more, but one that administers responsibly. Because governing is not only responding to the present, but honouring the future. Public debt matters. Not only because of its economic impact, but because it defines the kind of society we want to be: one that lives on credit… or one that builds with effort.