Will higher interest payments cost the U.S. its empire?
Newsweek’s current cover story puts forth a provocative thesis for those who own gold. It suggests the U.S. might have to raise interest rates dramatically to attract investors to its government bonds, which would make gold less attractive. And given the huge rise in U.S. indebtedness that began in 2001, such a boost in interest rates would squeeze so much cash from the U.S. Treasury that we wouldn’t have enough money to pay for our military — thus marking the end of our global empire. The author of this piece, Niall Ferguson, is a Harvard professor — but not all Harvard professors are right, to say the least. Witness former Harvard president Larry Summers, who The Boston Globe blames for a $1.8 billion plunge in Harvard’s endowment. Even so, Ferguson provides some interesting historical precedents to boost his argument. He notes that pre-revolutionary France spent 62% of royal revenue on debt service by 1788. The Ottoman Empire’s interest payments and amortization rose from 15% of t
