Sovereign Debt and the Middle Class

It ain't no use
We're headed for disaster
Our minds say no
But our hearts are talking faster
--Donnie Iris

Interesting explanation of who bears the burden of government debt. The idea that government debt that is bought by persons inside a country is not a burden on future generations is wrong, because resources are generated by individuals, not by countries. Debt constitutes the real transfer of resources between individuals.

Currently, the bottom of the economic pyramid benefits from transfer payments funded by taxes on the top of the pyramid. But, as the author notes, this is not the end of the story.

There are also reverse transfer payments made from the sovereign to the creditors in terms of interest payments on the bonds. Wealthy people own most of these bonds. As such, they receive some restitution for the income taxes they pay.

The demographic that gets hammered is the middle class. People in the middle receive relatively little in terms of welfare transfer payments or of bond interest payments.

Sovereign debt and the tax system employed to pay for the borrowing helps destroy the middle class.