Is the United States of America about to go bust, the way that previous empires like Spain and Britain did? Critics point to astronomical levels of government debt ( it’s now a whopping 123% of GDP) and ballooning trade deficits. Exactly the opposite to the US position just over one hundred years ago when it elbowed aside Great Britain to make Uncle Sam the dominant world player. “Ah”, counter the critics” if you have the world’s reserve currency you can issue as much debt as you like. And the fact that America has independent institutions makes its bonds the safest bet in the world for foreign investors”. So-no problem then? Perhaps. The trouble with debt is that it’s OK until it isn’t. As interest rates start to rise (as they have been doing for some time) the rising costs crowd out all sorts of fiscal flexibility. Especially on crucial issues like defence, health and education. As for the United States much vaunted institutions- recent events have put their independence in very great doubt indeed. [1]
But before we heap all the opprobrium on poor old America, don’t forget everyone else is doing it too, Japan is running debt at an eye watering 250% of GDP: while in France things are so bad , there are even rumours that they are flirting with an IMF bailout[2] If stalwarts such as they are in such deep trouble, what hope for less prosperous nations? The answer, chillingly, is not much. According to a report by Schroders [3] the levels of sovereign debt around the world are so high that they represent a real risk to future investment, growth and healthy trade. In effect the repayments will come to stifle most normal economic activity. Though the authors are careful not to go quite this far, what worries us is that if this activity slows, then there may be a real risk that many nation states may become structurally unable to ever repay their debt. If sovereign bond markets cease to function there is no real stable credit, In effect. all the money in the world has run out. The political, social and military consequences of that would be interesting indeed.
[1]https://edition.cnn.com/2025/08/29/economy/trump-fed-turkey-argentina
#sovereign debt #USA #japan #france #economics #finance
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