“Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem – ‘even the United States, the world’s largest economy, has a very large fiscal deficit’ were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today… The IMF analysis is fascinating… the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb.” Conway discusses US gross debt as a percentage of GDP; the rising cost of extra healthcare and pensions; and the alarming amount of new debt it has to issue in coming years in order to keep on functioning. All in all, the US needs 12% of GDP lopped off its structural deficit. That’s $1.7 trillion, or almost all of Britain’s annual economic output. Because the dollar is the world’s reserve currency, the US has been able to keep borrowing at low levels throughout the crisis. This means the US has yet to feel the market strain, and also means the US has yet to face up to the public finance disaster that could come if it doesn’t handle the problem. While the US is not Greece, it could head in that direction if it does not start making efforts to cut the deficit. The upshot would be a dollar collapse, and a possible hyperinflation. The US has time to deal with its problems, but not forever.

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