Governments Facing The Wall Of Their Debt

At this historic juncture, as fall approaches and budget votes loom, debt is at the center of every debate. Everyone is gradually coming to realize — whether consciously or not — that this issue is fundamental and that all economic challenges, and much more, stem from it.

For several years now, the introduction — for the first time in history — of negative interest rates, followed by an abundance of liquidity, has sparked growing interest in monetary issues. Persistent inflation since the end of the health crisis and the resulting widespread impoverishment have only reinforced this interest. The current public debate on debt cancellation reflects this dynamic, which may continue in the future to focus on money creation.

Since money is created exclusively through debt, our economic system — with money at its core — is dooming itself to decline. However, this system is not confined to a single country but has affected the entire world ever since the United States unilaterally decided to abandon the gold standard in 1971. The growing financialization and the establishment of central bank independence beginning in the 1980s, following the two oil crises, subsequently cemented governments’ dependence on financial markets. As a result, any government running a deficit is now forced to borrow on the markets, since it can no longer be financed directly by its central bank. Moreover, their borrowing capacity has become unlimited, since it is no longer constrained by the physical limit imposed by the amount of gold held in central bank reserves, as was the case under the gold standard.

The consequences of such a system are numerous and significant. Since debt is inherently tied to interest — which grows exponentially — all public debt eventually becomes self-perpetuating over time, snowballing out of control. Thus, in 2026, France borrowed 310 billion euros, which were used primarily to repay previous loans, while the country’s debt naturally continued to grow. This situation, which applies to any nation, eventually becomes uncontrollable. We are currently in this phase.

Beyond this mathematical fact, a country’s rising debt affects all other indicators — and thus the economy as a whole. First, debt fuels public spending and taxation, among other things. As debt grows, the amount of interest — and thus the debt burden — only increases, even in the face of a temporary reduction in interest rates. The growth of debt contributes to rising inequality, which compels the government to adopt ever more interventionist and centralized policies. Not to mention its secondary effects, such as deindustrialization linked to debt and the pursuit of profit, given that the production of services yields higher returns than that of goods. Taxation, for its part, serves the same purpose: to cover its expenditures, stabilize its deficit, and cope with its soaring debt, every government eventually increases its level of tax revenue by creating new taxes, thereby demonstrating its powerlessness.

The second factor is growth. While growth is inherent in a debt-based currency — since growth is necessary to repay interest — it eventually slows down over time, once again despite all attempts to lower interest rates. This is also why — contrary to what is often claimed — when a country’s debt is low, its growth is strong and interest rates are high; and, conversely, when a country’s debt is high, its growth is low and interest rates are falling — except for the current period, when the dilemma facing central banks, in a situation unprecedented in history, is intensifying. Consequently, every state seeks sources of growth, particularly through imperialism and the seizure of foreign resources, or through the creation of new innovations, including artificial intelligence. Finally, there is inflation. Debt-based currency is, in fact, inflationary by nature.  Not only does its supply continue to grow as the level of debt rises — to the point of exceeding economic output — but interest payments also drive up the prices of all goods and services. This phenomenon is particularly evident in real estate prices, given that more than half of outstanding loans are for real estate.

If the debate over debt is so pervasive today, it is primarily because debt’s impact on the economy is greater than ever. Governments around the world are facing historically high levels of debt that nothing has been able to curb in recent years. Even inflation — which has persisted since the end of the health crisis and is portrayed by some as necessary to reduce global debt — has in fact forced central banks to raise interest rates, thereby compelling governments to borrow at increasingly high costs.

In this context, the proposal to cancel part of the public debt naturally returns to the forefront, particularly in France, where the fiscal situation closely resembles that of the late 18th century. This proposal currently concerns nearly 600 billion euros held on the balance sheet of the Banque de France (and not by private creditors), which has been nationalized since the end of World War II. While these loans are repaid by the government (that is, the French people) to itself before being written off (in accordance with standard debt repayment procedures), in the event of cancellation, France would retain this amount (these cash reserves would no longer be backed by debt) and would thus be relieved of a considerable burden, leading to greater monetary sovereignty.

Because of its influence, this proposal is at the center of numerous controversies. Effectively, if France were to adopt such a measure, it could quickly spread to other European countries and then to many other nations, particularly the United States, where the trend in public debt can only lead to a dollar crisis and the end of American hegemony. However, given the risk that virtually all currency in circulation could disappear, these write-offs can only be partial, since money is created almost exclusively through credit (with the exception of coins and banknotes). Furthermore, and most importantly, this proposal raises the most significant economic issue: that of money creation. If part of the debt is canceled, government financing through the markets could be called into question, as could the independence of central banks, which is already under strain. But this development is a direct consequence of the crisis of confidence in the monetary system, the root cause of which lies above all in the loss of value of money, linked to its creation. It is also against this backdrop that central banks around the world are deciding to repatriate their gold reserves, particularly from the United States, where confidence in the dollar is waning. The Netherlands has, in fact, recently become the second European country after France to repatriate a portion of its gold reserves stored in the United States. Other countries, for their part, might choose to revalue their reserves and use the proceeds to reduce their deficits and repay part of their debt, as many nations have already done in past decades — including Germany, Italy, Lebanon, and South Africa. Thus, faced with the imminent risk of an inflationary crisis in advanced economies and the resurgence of the debate on debt cancellation, attention is simultaneously turning to the historical form of money whose characteristics are diametrically opposed to those of debt-based money. A sign of the end of a cycle and the imminent emergence of a new balance in the international monetary system.