Today's article, (presented below) "US needs to stop digging hole through to China," by Sydney Morning Herald's International Editor Peter Hartcher is only an opinion -- but it is one that is steeped in fact. When a country is under threat of invasion, it does what it must and it doesn't count the cost. But when the danger has passed, the debt remains. If big enough, it soon emerges as a serious national problem. This is where the world is at the moment. The worst of the global financial crisis is behind us. Governments have announced enormous stimulus spending, and central banks have issued free money without restraint.
When a country is under threat of invasion, it does what it must and it doesn't count the cost. But when the danger has passed, the debt remains. If big enough, it soon emerges as a serious national problem.
This is where the world is at the moment. The worst of the global financial crisis is behind us. Governments have announced enormous stimulus spending, and central banks have issued free money without restraint.
Although there will be much more bad news, the panic has eased. And the world is starting to tally the debt.
Global markets had been surging since March. But last week wobbled when the ratings agency Standard & Poor's issued an alert that Britain's rolled-gold AAA-credit rating was in jeopardy, for the first time since it began monitoring British public finances in 1978.
The question crystallising in a hundred million minds: have governments overdone it? Ireland and Spain have already lost their AAA-credit ratings. But Britain was the first of the world's big economies to have its creditworthiness challenged in this crisis.
Which is a bit quirky when you consider its government deficit this year will amount to 9.8 per cent of national income, while the US government deficit will hit 13.6 per cent, according to the International Monetary Fund. (Australia's is projected to be 4.7 per cent.)
It took the markets only a few hours to make the logical leap from Britain's situation to America's. The superpower was being reappraised.
"History shows that government failure to meet debt obligations is the rule, not the exception," Jonathan Compton of the British-based Bedlam Asset Management reminds us. "Indeed, it is unusual for a country to have a track record longer than three generations for repaying bonds."
But, in worrying about the creditworthiness of the US, the Chinese were well ahead of the markets. China's Premier, Wen Jiabao, said in March he was "a little bit worried" about "the security of our assets" invested in US Government Treasury bonds.
China's worries have not abated, judging by the recent visit of a top US policy maker, Richard Fisher, the president of the US Federal Reserve Bank of Dallas, one of the 12 regional banks that make up the US Federal Reserve System.
Fisher said that on a trip to China, he "wasn't asked once" about the problem of mortgage-backed securities, the risky debt instruments that abetted America's financial collapse. "But I was asked at every single meeting about our purchase of Treasurys," Fisher told The Wall Street Journal.
What is he talking about?
Through history, kings desperate to pay for wars have debased their currencies to meet their debts. They added more lead and less gold to coins to make the gold stretch further. The modern equivalent is governments ordering central banks to print more money to finance government debt. Prudent modern governments avoid this.
Why? Because, as many kings discovered, you can win the war and still lose your kingdom. Debased money, money so free and easy that it loses real value, will eventually destroy a kingdom through inflation or financial crisis.
Yet, in responding to the financial crisis, the US Federal Reserve has done exactly this. And America's biggest creditor, China, is worried.
"Senior officials of the Chinese Government grill[ed] me about whether or not we are going to monetise the actions of our legislature," Fisher told The Wall Street Journal. "I must have been asked about that a hundred times in China."
This marks a threshold. Creditor concern has moved from worry about private debt to public.
Fisher believes the US must stop and that the Fed should stop financing the government deficit: "I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can't run away from it."
But that's exactly what is troubling the Chinese. There are ways of running.
Since entering the financial crisis last September, the US Government has spent, or guaranteed private debt, worth a total $US13 trillion ($16.7 trillion), which is about 90 per cent of national income.
On top of that, the Dallas Federal Reserve calculates the US Government has taken on unfunded liabilities for retirement and health-care obligations of more than $US99 trillion, which is another 700 per cent of national income. It is, in Fisher's words, "a very deep hole".
One way out of it would be for the Government to inflate its way out of debt. That is, cheapen its money by issuing way too much, just like the kings of yore.
With interest rates near zero and excess cheap money flooding the US system, that process is already under way. But remember - it was excess cheap money that created the US housing "bubble" that generated this crisis in the first place.
The only way out of this hole is for the US to stop digging. Britain and most of Western Europe are not much better placed than America. Japan is even worse.
Discipline is an unfashionable concept in the rich countries. The alternative is relative national decline.