{"text":[[{"start":6.05,"text":"The writer is an FT contributing editor, a visiting scholar at the Hoover Institution and author of a forthcoming book on globalisation"}],[{"start":14.149999999999999,"text":"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."}],[{"start":52.05,"text":"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."}],[{"start":101.69999999999999,"text":"The dreamworld of the 2010s was a product of several beliefs: that real interest rates would stay low, that globalisation would muffle supply-chain shocks, that military threats were contained, and that political elites and a silent majority of prudent voters would act to restore discipline if needed. These beliefs were looking fragile by 2020 but some countries still let rip with borrowing during the pandemic, and then didn’t stop after it."}],[{"start":129.45,"text":"The places that were wary of these ideas are now in a stronger position. They have fiscal capacity to cushion citizens from more frequent energy and supply shocks, to invest to de-risk supply chains, from pipelines to critical industries, and to re-arm. In a new age of total war, deterrence requires financial staying power. The Ukraine war has cost over 50 per cent of the total prewar GDP of the two combatants. Ukraine relies on European cash. Russia has managed to stagger on partly owing to the Kremlin’s “fortress” balance sheet policy after its invasion of Crimea in 2014. Even that is tottering."}],[{"start":167.1,"text":"These different starting points and new dynamics are likely to play out in three ways. First, America’s fiscal reckoning will be tied up with its superpower status like never before. During 2025, the dollar “debasement trade” reflected in part the fear sanctions and tariffs would repel foreign investors. The Treasury’s new attempt to depress bond yields is a signal that rather than tame spending, the US is prepared to distort markets to cap borrowing costs, even if that causes its currency to fall. That raises more questions about the dollar as a haven. And, if America is forced to squeeze spending, it may not sustain its planned defence surge. The budget proposal is to spend more than 4 per cent of GDP in 2027 to rebuild deterrence."}],[{"start":211.6,"text":"The second is that debt desperados will struggle to escape the trap. In Britain 50-60 per cent of the electorate works in the public sector or gets benefits or a state pension, suggesting a tipping point has been hit. Public debt troubles will spill into the private sector, making these countries worse places to do business. A continual fear of tax raids to balance the books, and debt jitters, will sap confidence. Broke governments are more likely to try to mitigate energy and supply-chain shocks by intervening to cap prices or profits."}],[{"start":243.6,"text":"Governments in high-debt countries will try to avoid austerity and an exit of business and talent. But the test is when a recession, crash, supply-chain crisis or military event produces a shock they no longer have the fiscal capacity to mitigate. When Canada was forced to deleverage in the 1990s, it cut military spending by a fifth. After the Asian crisis, South Korea slashed defence. Their allegiances may be negotiable. In 1976 Britain considered threatening to quit its defence obligations unless America helped it get cheap IMF loans."}],[{"start":277.1,"text":"The final trend is that influence will shift to low-debt countries. In the Middle East, rich Gulf states have already superseded Egypt as the leaders of the Arab world. South Korea is growing more influential. A lower-debt group that includes the Nordics, Baltics, Poland and Germany is the new heart of European hard power, accounting for two-fifths of its defence spending. They may feel obliged to help keep Europe’s high-debt economies afloat, but in return they are entitled to demand leadership of Nato, and perhaps nuclear weapons technology and UN Security Council seats from Britain and France. "}],[{"start":315.5,"text":"None of this is preordained and high-debt economies could yet be stirred into action. But geopolitical power and fiscal capacity complement each other. The former without the latter is rarely sustainable. In 1990 Mikhail Gorbachev met James Baker, then US secretary of state, in Moscow. The Soviet leader sternly warned the US against a reunified Germany in Nato. It was a good show until he pleaded with Baker, “We need some oxygen . . . we’re going to need $15bn to $20bn to tide us over.”"}],[{"start":355.3,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787363475_7574.mp3"}