Regarding debt and how things might unravel
It makes sense to borrow to gain something that you would otherwise miss and which will repay you. For instance, the US federal government borrowed a bit in the early years to build internal improvements like canals and roads. These generated economic activity which allowed the government to recoup it indirectly through taxes from a more prosperous public. That sort of thing is just what governments ought to spend on, serving the common good which everyone benefits from, but which no one can make money doing privately. Examples today include improving streets and lighting so that the expenses of crime are reduced and more people come to buy stuff which the city can tax. They're taxing profitable activity that wouldn't have been there otherwise, so without hurting anybody, they can repay what they borrowed for the street work and lighting - which everyone profits from.
And that brings me to my second point. Debt is all right if it is repaid by generating beneficial things, as the roads and canals did. Otherwise, you can get away with debt for unprofitable activities like war and corruption if, and only if, you have growth, because even if the debt doesn't shrink in absolute terms, growth effectively does reduce it. If my son owes $10,000, then even if he doesn't pay it back for a long time, it matters less all the time as his income rises. This is why student loans can make sense if the education results in a higher paying job, but when it usually results in no job at all, as it is today, student loan debt is for suckers.
And there's a fundamental problem. For the past 400 years, energy has kept getting cheaper and economies have generally grown. Therefore debt even for futile things like war and corporate welfare has been manageable most of the time, because we could grow out of it. When you can't grow out of debt, then over time the creditors get richer from interest in a no-growth economy, and generally there is no paying it back, especially since everyone else is impoverished. In this way stolen wealth actually impoverished the Spanish empire in the 17th and 18th centuries, as it was diverted to war and luxury, while inflation and favors to the rich impoverished everyone else.
From ancient times, this debt trap has been handled in one of two ways. In the Greek city states, revolutions would take place now and then, and lower class revolutionaries always canceled debts. The Law of Moses handled it differently: every 7 years debts would be canceled, and every 50 years all debts would be canceled and, except within city walls, all property would return to its original owner.
Failing to obey this made rich folks continually richer and impoverished everyone else. The results were unrepayable debts and the oppression shouted against by all the prophets.
So long as you have a growing economy, you might stay ahead of your debt, if you're careful. Growth still won't keep you from falling into a debt trap if the cost of servicing the debt exceeds what you can expect in growth. It's true that you can look like you have growth for a while by printing money and creating weird financial instruments that let you play three card Monte for a while.
But with insufficient growth, interest will run ahead and the debt will grow over the long term, unless it is periodically repudiated or canceled. There are various ways to do that if you don't want to do it the Bible way - and just about nobody does. None of those ways is as pleasant as the Bible way.
One way is simple repudiation. That's often the best of these bad alternatives, especially when it's justified, as when banks take advantage of government corruption to lend money for military spending, show projects, or other such futilities. People walk away from bad mortgages, throwing the keys at the lender. At the end of 2001, Argentina repudiated most of its debt, run up by Carlos Menem, and told the International Monetary Fund where to stick its advice. After a few months Argentina started doing fine and has ever since. This is no surprise, since it most closely resembles biblical debt cancellation.
If for any reason they don't want to be straight about it, governments can inflate away their debt. The US government has borrowed money from Japan and especially China by selling Treasury bonds. By magically creating more dollars, the US Treasury magically reduces the worth of everyone else's dollars. The Chinese are repaid the face value of the note with interest, but some of this is new imaginary money, so in reality they are not fully repaid.
Another way is to repackage debts to look like something else. Leading up to the crash of 2008, lenders would package mortgages into derivatives based on these mortgages, and then they made the loans look solid by buying a credit default swap to guarantee the loan. However, the sellers of these credit default swaps - essentially bail bondsmen for loans - weren't regulated insurance companies required to set aside reserves sufficient to actually pay these off if things went ill. This kind of shuck and jive gets really ugly when the music stops, because loans that were supposedly perfectly sound are fiction. This is a lot slicker than inflating away the money, which at least you can see happening. It just turns out suddenly that there is really nothing there. You open the package, and you find a little note saying, "Sorry, sucker," and the next news you know, Lehman Brothers is no more.
That happened in 2008, and they're all still at it, because Bush and Obama agreed upon making all the banksters immune from prosecution, no matter what crimes they committed. Instead, they gave them a lot of free money, making it clear that the biggest ones will always get a free fix from the Treasury. One minor nuisance is that throwing all this money at the banksters, informing them that any bad bet in the future will be covered by the Treasury, has just transferred all this unpayable debt to governments, who we've seen lately are in a lot of trouble, from Greece on up.
There was a simple alternative, if any of these politicians had any concern for the general welfare, and if they'd been willing to forgo the bribes (campaign contributions) of the crooks. They could have done to all of them what they did to Washington Mutual - seize them all, stiff the shareholders, give the bondholders a short haircut, and sell off the profitable remains to solvent competitors. Rewarding all these rich crooks, precisely because they're rich and crooks, hasn't solved the problem. It has just moved things around, bankrupting governments and fleecing whole populations. So long as the music goes on, totally ripping off the American middle class, which will now fall into the ranks of the penniless unemployed, looks like something they will get away with.
But the music must eventually stop in a no-growth economy, because there really isn't more wealth, no matter how many exotic debt instruments you invent. If there are only so many hogs, so many people eventually wind up getting to eat only so many pork chops.
The wrath of the suckers can be redirected against immigrants or their fellow workers in public employee unions, as long as they're dumb enough to think that it's the guys cutting their neighbor's grass, or the teachers, or the clerks at the DMV, that are plundering the economy, and not the billionaires with their hundreds of billions in subsidies and tax breaks. But reality bats last. They can do whatever they want to immigrants and public employees, but fighting on the side of those who are robbing you so as to grind down someone even weaker than you will not find favor with God. Besides, you have to get the money from where the money is, not from where it isn't.
The creditors being cheated don't like it. Unlike the American people, they have not been rendered so stupid by envy and hatred that they can't see what the deal is. Even those radical communist redistributionists at Standard and Poors, when downgrading the US government credit rating 10 days ago, blamed the problem mostly on the Republicans in Congress that are unwilling to make their rich friends pay any taxes. So now the Chinese are talking about getting rid of the dollar as the reserve currency. If that happens, the US won't be able to plunder the world by just waving more dollars into existence, and things will look very different here, very fast.
While governments can still borrow money, they would best borrow money to do useful work, as the US government did with internal improvements 175 years ago. First, forget about feeding the military any more. If it's more than we need to keep the Taliban from making an amphibious landing in California, forget about it - and for that we have the Coast Guard. If an agricultural practice like factory farming doesn't pay its way without subsidies, and they can't afford to clean up after themselves as we were all taught to do in kindergarten, forget about that too.
There are few jobs now, but a whole lot of needful work not being done. We could spend money on getting that work done. We will end up very sorry if it doesn't. Train tracks. Public transport, for when driving becomes unaffordable. Cleaning up radioactive waste so it doesn't get out of hand as things unravel. Bridges. Broken school buildings.
Of course the idea that such good sense could come to the utterly deluded masses of the United States of America seems absolutely hopeless. But who can tell? All of a sudden, we have hundreds of thousands of Israelis in the streets protesting the same kind of corruption and stupidity we have here - which they have fallen for all these years just as stupidly - and people you never would have imagined working together are waking up. It all started with a woman thrown out of her apartment in Tel Aviv putting up a tent in a park. And things started to unravel for Zine Abeddine Ben Ali and Hosni Mubarak when a lady cop in Tunisia slapped the wrong fruit seller in the face.
Things will unravel here, since growth and imperial expansion are no longer available to enable us to kick things down the road. We can't export our social problems to the frontier at the expense of the Indians anymore. We can't stuff ever more crap into people's mouths to make delusion comfortable by raping Latin America and Asia and Africa for resources more and more all the time In fact, they're all starting to push back. We are looking at a whole new situation for the United States, which unlike other nations, in 400 years we've never met before.
So will we go the way of Nazi Germany and Fascist Italy, squaring things by blaming and robbing others even weaker than ourselves? Or will we learn to help the weak as the Bible says and embrace the fellowship of poverty when we're thrust into it, as has happened in Argentina, Tunisia, Egypt - and maybe even Israel? That last is still too close to call. And maybe we are too. I hope so. It's really worth praying for. And it's worth preparing our hearts for.