A $5 Trillion National Debt

Summary

This file is a short 1995 political-economy essay by Hans F. Sennholz. Its scope is narrow but polemically ambitious: it uses the imminent crossing of the $5 trillion federal debt threshold to argue that national indebtedness is not merely an accounting problem but a moral, monetary, and intergenerational disorder.

By the time you read these lines the debt of the federal government will have passed the $5 trillion mark.

Sennholz’s central thesis is that the federal debt represents a disguised form of bankruptcy already underway. He distinguishes legal bankruptcy from a broader economic and ethical bankruptcy: government may not be subject to liquidation by creditors, but it can default in substance through inflation, taxation, and currency depreciation.

In this sense, the federal government went bankrupt on the first day it resorted to inflation.

This conceptual move lets Sennholz reject the reassuring claim that sovereign debt is safe because the state can always tax or print. For him, those powers do not remove default; they shift it. Taxation transfers the burden to private citizens, while inflation covertly expropriates holders of money and claims denominated in money. The state’s legal immunity from bankruptcy proceedings therefore becomes part of the danger, not a solution.

There is no power on earth that can force the U.S. Government to disclose all its properties and distribute them equitably to its creditors.

The essay then turns against the familiar slogan that public debt is harmless because “we owe it to ourselves.” Sennholz answers first with a factual correction: foreign institutions hold major portions of U.S. debt. More importantly, he argues that the slogan erases the real distinction between debtors and creditors. A Treasury security is still a claim against taxpayers, and a creditor is not consoled by the debtor’s collective language.

"We owe it to ourselves" is their favorite motto.

Sennholz next addresses the intergenerational defense of deficit spending. He grants that current borrowing postpones payment and shifts costs forward, but rejects the Keynesian-style claim that present public expenditure creates enough future income to offset the burden. Entitlements and subsidies, in his account, reproduce political claims rather than productive assets.

In reality, there is little, if any, future income from present deficit spending.

The structure of the argument then moves from bankruptcy, to creditor-debtor relations, to capital theory. Sennholz’s key economic claim is that deficits absorb real savings. Government borrowing does not summon unused resources costlessly; it redirects capital away from private production toward political consumption. Even when spending is called “investment,” he argues, it is typically weakened by waste, corruption, and malinvestment.

Deficit financing generally involves the consumption of someone's savings.

This is the essay’s core Austrian-style conceptual move: debt is not merely a future financial obligation but a present reallocation of scarce capital. New debt matters because the economy has not yet adjusted to it; it draws resources out of private use and lowers productivity. Sennholz compares peacetime deficit spending to wartime mobilization, not because the goods are identical, but because both divert resources from voluntary production toward state-directed ends.

Massive deficits consume productive capital on a massive scale.

The consequences, in his view, are cumulative. Capital consumption reduces labor productivity, output, and future wealth; political borrowing also distorts the remaining capital structure by rewarding industries tied to public expenditure. Thus future generations inherit not only interest payments but a weakened and politicized productive apparatus.

The essay’s relevance lies in its warning that public debt cannot be understood simply as a number on a Treasury balance sheet. Sennholz treats it as a nexus of inflationary default, coercive taxation, creditor deception, capital consumption, and intergenerational injustice. Its closing sentence condenses the work’s moral tone: the debt is not a neutral policy instrument but an accumulated record of fiscal evasion.

Debts, follies, and crimes are generally mixed together; the federal debt is a $5 trillion mixture.