The major financial difference between post-World War II borrowers and borrowers after 1970 lies in the nature of borrowing conditions and the financial environment:
- Post-World War II Borrowers: After WWII, borrowing was characterized by low interest rates due to government policies such as the Federal Reserve's pegging of interest rates at very low levels (e.g., 0.375% for Treasury bills to 2.5% for 30-year bonds) to contain the cost of war financing. This period also saw "financial repression," where interest rates were kept artificially low, and inflation was relatively high, which effectively reduced the real burden of debt over time. The government ran primary surpluses and maintained disciplined fiscal policies, which, combined with strong economic growth, helped reduce the debt-to-GDP ratio significantly. Borrowers benefited from negative real interest rates and controlled inflation, making debt cheaper to service
- Borrowers After 1970: After 1970, borrowing conditions changed substantially. The era of financial repression ended, interest rates were no longer pegged at low levels, and inflation became more volatile. Banks and lenders became more willing to lend, often at higher interest rates, and borrowing increased without the same post-war fiscal discipline or economic growth rates. The financial environment shifted to one where borrowing was more market-driven with less government intervention in interest rates. This period saw more liberal credit markets and increased consumer and corporate borrowing, but without the artificially low interest rates and inflation dynamics that had benefited post-WWII borrowers
In summary, post-WWII borrowers benefited from government policies that kept interest rates low and inflation high, effectively reducing debt costs, whereas borrowers after 1970 faced a more market-driven environment with higher interest rates and less fiscal discipline, leading to fundamentally different borrowing conditions.
