The Great Debt of the American Fortress

Until recently, the “global deficit war” had been primarily a war of global positioning, holding only marginal interest for the great powers. In fact, for the moment, the most vicious bloodshed has taken place almost exclusively in the peripheries: the embattled trenches of Greece, Portugal and Ireland; the risky outposts of Spain and Italy; and perhaps, before long, France, once it is clear that Paris will not accept the Fiscal Compact.

Strictly speaking, the world’s largest public and private debt is held by the United States, a seemingly untouchable economy perched high in its headquarters and well-defended by three pillars: its military-strategic power, the U.S. dollar as the world’s accounting tool, and policies of quantitative easing. The weakness of the European market has even helped the U.S. make investors and financial analysts forget that the downward spiral began in their own toxic bubble, Wall Street.

Similarly sheltered from the flames is Germany, which has the Western powers’ second-highest public debt and its third-highest private debt. Great Britain now has the second-highest private debt, and, based on its current pattern, will have the third-highest public debt in a few years, on par with France and Italy (no longer the black sheep, but a peer).

Yet, paradoxically, the three Western countries with the largest collective debt (the U.S., Germany and Great Britain) are being charged historically low interest rates, as if the financial downturn has benefited more than threatened them. Meanwhile, on the “outskirts” of the Eurozone, the interest rates of Spain and Italy have been allowed to teeter precariously on the limits of sustainability, and the interest on weak government bonds has spiraled out of control.

Yet these three great powers are still a long way away from being thought of, in terms of severe public debt, on the same level as Italy and Belgium; private debt posing a serious problem had previously seemed a remote possibility. Today, however, every Western economy is weighed down by debt, both public and private (the danger of the latter and the rapid devolution of sovereign debt only belatedly understood, as evidenced by the Spanish case). Nevertheless, only a few countries are stigmatized, beginning with the smaller-sized (Greece), to the medium (Spain), and, as usual, Italy; countries black-marked with a perennial unreliability formerly only borne (unjustly) by our own, and which are now in the cross hairs of economic downgrading, conjecture, divestment, and the risk of capital flight.

As long as the great powers/debtors continue to mislead the marketplace and investors about the true character of their debt, they will keep evading the fire and profiting on the decline of other countries. However, the moment of truth may be close at hand and, at the point that the gigantic economic problems begin to affect them, the great powers may be forced to introduce a moratorium on debts, including their own, dampening the flames of instability that have thus far only touched the small fry.