The writer is an FT contributing editor, a visiting scholar at the Hoover Institution and author of a forthcoming book on globalisation
This week long-term US interest rates soared to their highest level since 2007 amid a global debt wobble. That led a nervous Treasury department to take the revealing step of intervening in bond markets to try to tamp down yields. After two decades of a fiscal dreamland, reality is well and truly back. It is a messier reality than in the 2000s. Global public debts are larger, there are wider gaps between rich nations, and in a predatory world the stakes are higher. Countries with excessive debt now endanger not just their economic stability, but their social fabric, military deterrence and geopolitical power.
The planet’s pile of gross public debt has risen from 59 per cent of GDP in 2007 to 95 per cent or $110tn today. Behind that lies a wide variety of conditions. America’s wild finances are enabled by the dollar’s reserve currency role, which boosts demand for its debt. China and India have high debts but partly closed financial systems that cap interest costs. India’s debts are offset by fast growth, while autocratic China can tap into its private wealth and foreign assets. Norway, Singapore and the United Arab Emirates have big cash buffers. Other industrial countries can be roughly split into low-debt winners such as Australia, Germany and South Korea, and debt desperados including Britain, France, Italy and Japan.