The Debasement: Why Every Great Power That Borrowed Its Way to Greatness Borrowed Its Way to Ruin

In 2025, the United States government spent more on interest payments than on national defence for the first time in its history. Not by a slender margin, either. Net interest on the federal debt consumed $882 billion in fiscal year 2024 and crossed the $1 trillion threshold in 2025, surpassing the $886 billion defence budget (Congressional Budget Office, 2025). The most powerful military in the history of the world now costs less to maintain than the interest on the borrowing that was, in part, used to build it.

This is the kind of milestone that ought to concentrate minds. It has not. The prevailing attitude in Washington – and, increasingly, in every Western capital – is that sovereign debt is a problem for another decade, another administration, another generation. There is always a war to fund, a crisis to bail out, a stimulus to inject, a voter base to mollify. The bill, as ever, is sent forward.

Philip II of Spain would have recognised the instinct. He commanded the largest empire the world had ever seen, drew the silver of Potosi and the gold of the Americas directly into his treasury, and still managed to go bankrupt four times – in 1557, 1560, 1575 and 1596 (Drelichman and Voth, 2014). The man had a literal mountain of silver and could not make the sums add up. One rather suspects that if Philip had been offered a credit card, he would have maxed it out funding the Armada and then applied for a second one to pay the minimum on the first.

He is not the exception. He is the template.

Every great power in recorded history has followed the same fiscal arc: borrow to build, borrow to fight, borrow to sustain, and eventually discover that the interest on the borrowing has become the thing that destroys the capacity to build, fight, or sustain anything at all. The names change – Rome, Spain, France, the Ottoman Empire, Britain – but the arithmetic does not. Compound interest does not care about your civilisational achievements.

This essay traces that arc from the ancient world to the present day, and asks whether the modern West – sitting atop a debt mountain that makes Philip’s look like a garden hillock – is following the same path, or whether something has genuinely changed. The evidence is not encouraging.

The Debt Cycle in History

Spain: The Empire That Drowned in Silver

Spain’s serial defaults remain the most instructive case study in the relationship between imperial ambition and fiscal ruin. Between 1557 and 1647, the Spanish Crown defaulted on its obligations six times – in 1557, 1560, 1575, 1596, 1607, and 1647 (Reinhart and Rogoff, 2009). Each default followed the same pattern: a major military commitment, financed by short-term borrowing from Genoese and German bankers at usurious rates, followed by the dawning realisation that the revenues from the Indies were insufficient to service the accumulated interest.

The irony is extraordinary. Spain was the recipient of the largest transfer of precious metals in human history. Between 1500 and 1650, approximately 181 tonnes of gold and 16,000 tonnes of silver flowed from the Americas to Seville (Hamilton, 1934). And yet the Crown was perpetually insolvent. The reason was structural: Spain spent the silver faster than it arrived. The wars in the Netherlands alone consumed roughly 20% of total Crown revenues for eight decades (Parker, 2004). Add the Mediterranean fleet, the Italian campaigns, the defence of the Americas themselves, and the servicing of existing debt, and expenditure routinely exceeded income by 50% or more.

What makes the Spanish case so resonant is not the scale of the borrowing but its self-reinforcing nature. Each default raised the cost of future borrowing. Each rise in borrowing costs required still more revenue to service the debt. Each attempt to raise revenue – through higher taxes in Castile, through debasement of the coinage, through forced loans – weakened the productive economy and drove capital abroad. By the mid-seventeenth century, Castilian peasants were paying some of the highest tax rates in Europe while the economy shrank around them (Elliott, 1963). The empire did not collapse in a single dramatic event. It was slowly hollowed out from the inside, its revenues consumed by the compound interest on its own ambitions.

France: The Revolution You Could See Coming for Thirty Years

France’s fiscal trajectory in the eighteenth century follows the Spanish pattern with eerie precision, compressed into a shorter timeframe and ending rather more dramatically. By 1789, debt service consumed approximately 60% of all royal revenues (White, 1989). The proximate cause was familiar: decades of expensive wars. The Seven Years’ War (1756-1763) had been ruinously costly; France’s intervention in the American Revolution (1778-1783) – a strategic triumph that helped create the United States – added a further 1.3 billion livres to the national debt (Doyle, 2001).

The French Crown’s response was equally familiar: a succession of finance ministers, each more desperate than the last, attempting to reform a tax system in which the nobility and clergy were substantially exempt from direct taxation. The burden fell disproportionately on the Third Estate – the commoners – who bore both the heaviest tax load and the least political power. By the time Louis XVI convened the Estates-General in May 1789, he was not seeking political reform; he was seeking permission to raise taxes because the alternative was default.

What happened next is well known. What is less appreciated is that the Revolution was, at its origin, a fiscal crisis. The storming of the Bastille was downstream of the interest payments on the debt incurred to help George Washington. History is fond of such ironies.

Britain: The Graceful Decline

Britain after 1945 presents a subtly different variant of the same pattern. At the end of the Second World War, national debt stood at approximately 250% of GDP – higher even than today’s Japan (Middleton, 2011). Unlike Spain or France, Britain did not default. Nor did it experience hyperinflation, despite a brief post-war spike. Instead, it chose a third path: managed decline.

The mechanisms were deliberate, if painful. Financial repression – holding interest rates below the rate of inflation – gradually eroded the real value of the debt over three decades (Reinhart and Sbrancia, 2015). The empire was dismantled, not primarily out of moral awakening but because it had become unaffordable: India, the jewel in the crown, was granted independence in 1947; the Suez humiliation of 1956 demonstrated that Britain could no longer project power independently of American approval; and by the 1970s, Britain was seeking an IMF bailout. The debt-to-GDP ratio fell from 250% to under 50% by the early 1990s, but the price was the loss of great-power status, decades of relative economic decline, and the humiliation of going cap in hand to the International Monetary Fund in 1976.

Britain’s experience is often held up as proof that high debt can be managed without catastrophe. And so it can – if you are willing to accept that “management” means the slow, deliberate surrender of everything the borrowing was supposed to preserve.

The Ottoman Empire: The Sick Man’s Prescription

The Ottoman case is less well known but equally instructive. By the mid-nineteenth century, the empire that had once besieged Vienna was financing its military and administrative apparatus through foreign borrowing at punishing rates. The first Ottoman foreign loan was issued in 1854, during the Crimean War. Within two decades, debt service consumed over half of all government revenues (Birdal, 2010). By 1875 the empire was unable to meet its obligations and declared a partial default, leading to the establishment of the Ottoman Public Debt Administration in 1881 – an institution controlled by foreign creditors that effectively took over the empire’s revenue collection. European bankers were, in essence, running the Ottoman treasury. The Sublime Porte had borrowed its way from sovereignty to supervised insolvency in barely a generation.

The humiliation was not lost on the empire’s subjects. The loss of fiscal sovereignty undermined the legitimacy of the state, contributed to the rise of the Young Turk movement, and helped set the stage for the empire’s dissolution after the First World War. The Ottomans did not fall to a single military defeat; they fell to a century of compounding interest and the political consequences that followed from it.

The Common Thread

Reinhart and Rogoff, in their landmark study of eight centuries of sovereign debt crises, identified the pattern with statistical rigour: the median government debt-to-GDP ratio at the point of default was 69% for emerging markets and rather higher for advanced economies, which tend to default later because they can borrow more cheaply and for longer (Reinhart and Rogoff, 2009). The mechanism varies – outright default, inflation, financial repression, currency debasement – but the underlying dynamic is always the same. Debt is accumulated during periods of confidence and ambition. Interest costs rise. The productive economy is progressively starved of resources. And eventually, something breaks.

“This time is different” is, as Reinhart and Rogoff titled their book, the four most dangerous words in economics. Every generation believes it has found a way to escape the arithmetic. None has.

The Modern Debt Mountain

The scale of contemporary government indebtedness would have given Philip II a nosebleed. Global government debt surpassed $100 trillion in 2024 – roughly 93% of global GDP – and is projected to reach 100% of GDP by 2030 (IMF, 2024). The acceleration is remarkable: as recently as 2007, global government debt stood at approximately $30 trillion.

The United States leads the pack in absolute terms: $36 trillion in federal debt, representing approximately 124% of GDP as of early 2026 (US Treasury, 2026). The Congressional Budget Office projects this will rise to 166% of GDP by 2054 under current law, with interest payments alone consuming 6.3% of GDP – more than the entire defence budget, Social Security, or Medicare individually (CBO, 2024). The federal government is currently adding roughly $1 trillion in new debt every 100 days.

Japan, the perennial outlier, carries government debt of approximately 260% of GDP – a figure that would have triggered a sovereign debt crisis in any other country decades ago (IMF, 2024). Italy sits at 137%, France at 112%, the United Kingdom at 101%, and Greece – still bearing the scars of its 2010-2015 crisis – at 162% (Eurostat, 2025). China’s official government debt is a comparatively modest 84% of GDP, but total debt – including local government financing vehicles, state-owned enterprises, and the corporate sector – exceeds 300% of GDP, a figure that has roughly tripled since 2008 (BIS, 2024).

The post-2008 and post-COVID expansions account for much of the surge. The 2008 financial crisis prompted bank bailouts and fiscal stimulus across the Western world, adding trillions to sovereign balance sheets. COVID-19 then triggered the most aggressive fiscal response in peacetime history: the United States alone spent approximately $5 trillion in pandemic-related stimulus between 2020 and 2021 (Pandemic Response Accountability Committee, 2022). Central banks, meanwhile, purchased trillions in government bonds through quantitative easing, effectively printing money to absorb the debt their governments were issuing. In the Eurozone, the European Central Bank held approximately 30% of all outstanding eurozone government bonds by 2022 (ECB, 2022).

The consequence is that interest payments have become one of the fastest-growing items in every Western budget. In the United States, net interest is projected to total $12.9 trillion over the next decade – more than the entire defence budget over the same period (CBO, 2024). In the United Kingdom, debt interest payments reached 94 billion pounds in 2023-24, consuming roughly 7.3% of total government revenue (OBR, 2024). Even Germany, long the fiscal paragon of Europe, has seen its debt-servicing costs rise sharply as the era of negative interest rates has ended.

The numbers are so large that they have become abstract. They should not be. A trillion dollars in annual interest is a trillion dollars not spent on infrastructure, research, education, or defence. It is a trillion dollars transferred from taxpayers to bondholders – a claim on the future productivity of citizens who were not consulted when the debt was incurred.

Why This Time Might Be Different – Or Not

The most intellectually fashionable argument for ignoring the debt mountain is Modern Monetary Theory, or MMT, which holds that a government which borrows in its own currency can never truly go bankrupt because it can always print more money to service its obligations (Kelton, 2020). Inflation, not insolvency, is the binding constraint. As long as inflation remains manageable, the debt is sustainable.

This is not so much a theory as a description of a mechanism. It is true that a sovereign government which borrows in its own fiat currency cannot be forced into default the way a household or a corporation can. The United States can always print dollars; Japan can always print yen. The question is not whether they can, but what happens when they do.

Japan is the closest thing to a real-world test of the MMT thesis, and the results are instructive – though not in the way MMT’s proponents might prefer. Japan has carried government debt above 200% of GDP for over a decade and has not experienced a sovereign debt crisis in the conventional sense: no default, no hyperinflation, no sudden loss of market confidence. The Bank of Japan now holds approximately 53% of all outstanding Japanese government bonds (BOJ, 2024). It is, in effect, lending the government money by printing yen and buying the government’s IOUs with them.

What Japan has experienced, however, is three decades of economic stagnation. GDP growth has averaged roughly 0.7% per year since 1991 (World Bank, 2024). Real wages have been essentially flat for a generation. The population is shrinking. The debt has not exploded – it has smothered. Japan did not die of a heart attack; it is dying of a slow wasting disease. If this is what “sustainable” debt looks like, the word needs redefining.

The Roman Empire offers the ancient parallel. Between Augustus and Diocletian – roughly 27 BC to AD 284 – the silver content of the Roman denarius fell from approximately 95% to under 5% (Harl, 1996). This was not “monetary policy” in any modern sense; it was debasement driven by the same fiscal logic that drives deficit spending today. The empire’s military and administrative costs exceeded its tax revenues, so successive emperors stretched the coinage further and further, producing more coins from the same amount of silver. The result was inflation, a collapse in trade, the progressive abandonment of the monetary economy in favour of barter and payment in kind, and eventually the fiscal crisis of the third century that nearly destroyed the empire entirely.

Niall Ferguson, in The Cash Nexus (2001), argued that the history of sovereign finance is a history of states attempting to borrow their way out of the consequences of previous borrowing. The methods evolve – coin-clipping gives way to paper money, which gives way to quantitative easing – but the underlying logic is unchanged. When expenditure exceeds revenue, the difference must come from somewhere: taxation, borrowing, or debasement. The first is politically painful, the second merely defers the problem, and the third destroys the currency. Most governments, confronted with these options, choose the second for as long as possible and then resort to the third.

Who Pays?

Debt is not wealth destroyed. It is wealth redistributed – specifically, from the future to the present, and from those who have no voice in the decision to those who do.

This is not an abstract observation. Every pound, dollar, or euro of government debt is a legal claim on the future tax revenue of citizens who may not yet have been born. The debt issued in 2025 to fund current consumption will be serviced by taxpayers in 2055. Those taxpayers – today’s toddlers and teenagers – were not consulted. They did not vote for the spending. They will, however, pay the interest.

The distributional consequences are profoundly regressive, and they have a historical parallel that is worth examining. In pre-revolutionary France, the tax burden fell overwhelmingly on the Third Estate – the peasantry and the bourgeoisie – while the First Estate (the clergy) and the Second Estate (the nobility) enjoyed substantial exemptions. The nobility, meanwhile, were the primary holders of government debt and thus the primary recipients of interest payments. The tax system was, in effect, a mechanism for transferring wealth from the productive poor to the rentier rich, with the Crown acting as intermediary (Doyle, 2001).

The contemporary parallel is uncomfortable but unavoidable. Government bonds are overwhelmingly held by the wealthy: institutional investors, pension funds (whose beneficiaries skew older), sovereign wealth funds, and high-net-worth individuals. The interest on those bonds is paid from general taxation, which falls on the working population. In the United States, the top 10% of households by wealth hold approximately 87% of all individually held government bonds (Federal Reserve, 2023). The bottom 50% hold functionally none.

There is a further mechanism at work that is rarely discussed. When central banks purchase government bonds through quantitative easing, they suppress bond yields and push investors into riskier assets – equities, property, private credit. This inflates the value of assets that are overwhelmingly held by the already wealthy. The Federal Reserve’s balance sheet expanded from $900 billion in 2008 to $8.9 trillion by 2022 (Federal Reserve, 2022). Over the same period, US house prices rose 70% and the S&P 500 tripled. The owners of houses and shares became dramatically richer. Those who owned neither – disproportionately the young, ethnic minorities, and the lower-income – saw their purchasing power eroded by the inflation that eventually followed. Quantitative easing was, in distributional terms, the largest upward transfer of wealth in modern history, and it was conducted entirely without legislative authorisation.

The generational dimension compounds the injustice. The borrowing binge of the past two decades has disproportionately benefited asset-rich baby boomers: low interest rates inflated property prices and stock markets, while deficit-financed spending sustained entitlement programmes. The costs – in the form of higher future taxes, reduced public services, or currency debasement – will fall disproportionately on millennials and Generation Z, who enter adulthood with lower real wages, higher housing costs, and a smaller share of national wealth than any generation since records began (Resolution Foundation, 2024). They are, in a rather precise sense, the modern Third Estate: bearing the heaviest fiscal burden with the least political representation relative to their economic weight.

This is not a left-wing argument about redistribution. It is a right-of-centre argument about fiscal honesty. Deficit spending is not “investing in the future”; it is borrowing from the future. And the people doing the borrowing are not the people who will do the repaying. If a private corporation ran its accounts this way – systematically extracting value from future stakeholders to fund current consumption – we would call it fraud. When governments do it, we call it fiscal policy.

The French peasants of 1789 eventually decided they had had enough of paying taxes to service debts incurred for wars they did not choose, to fund a court they could not access, and to enrich bondholders who contributed nothing. The form that their objection took was somewhat vigorous. Whether today’s indebted young will find a more orderly mechanism for expressing similar sentiments remains to be seen.

The Three Exits

History suggests three possible outcomes for a great power that has borrowed its way into a fiscal trap, and none of them is painless.

The British exit: managed decline. Accept that the debt burden has permanently reduced your capacity for ambition. Shrink your commitments to match your means. Sell the empire, mothball the fleet, join the European Economic Community, and spend thirty years pretending this was the plan all along. It works, after a fashion: the debt comes down, the country survives, and the standard of living eventually recovers. But you are no longer a great power, and your grandchildren grow up in a country that was once something else.

The French exit: revolutionary upheaval. Refuse to reform until reform is no longer possible, and then watch as the fiscal crisis metastasises into a political one. The French Revolution, the collapse of the Weimar Republic, the Argentine crisis of 2001 – each was triggered, at root, by a government that could no longer pay its bills and a population that could no longer bear the cost of the attempt. This exit is dramatic, occasionally cathartic, and reliably devastating for anyone who happens to be living through it.

The Japanese exit: slow stagnation. Avoid both reform and revolution by monetising the debt, suppressing interest rates, and hoping that the population is too old and too polite to complain. Growth stalls, wages stagnate, the young emigrate or simply stop having children, and the country enters a twilight of genteel decline that can last decades. Nothing is resolved, but nothing visibly breaks. It is the fiscal equivalent of a chronic illness – manageable but incurable.

The United States, the European Union, and China each face some version of this trilemma, though the specifics differ. The US has the advantage of the dollar’s reserve currency status, which allows it to borrow more cheaply and for longer than any other country on earth – but this is a privilege, not a law of physics, and it depends on the continued willingness of foreigners to fund American deficits. The European Union has the constraint of shared monetary policy and divergent fiscal positions, which makes both inflation and devaluation difficult for individual member states. China has the advantage of authoritarian control over its financial system, which can suppress a crisis for longer than a democracy can, but at the cost of even larger eventual misallocations.

None of these advantages changes the underlying arithmetic. Compound interest does not care about reserve currency status, or European solidarity, or the wisdom of the Chinese Communist Party. The debt must eventually be repaid, inflated away, or defaulted upon. There is no fourth option, however sophisticated the financial engineering or however fashionable the economic theory.

Philip II had the gold of the Americas. Louis XVI had the richest kingdom in Europe. Britain had a quarter of the world’s surface. Rome had the most formidable military machine antiquity ever produced. None of it was enough to outrun the arithmetic of compound interest. The United States has $36 trillion in debt, a political class that treats the deficit as somebody else’s problem, and a rising generation that will, sooner or later, present the bill. The historical pattern is clear. The only question is which exit the modern West will take – and whether it will choose, or have the choice made for it.