To some extent, this polarisation of views mirrors the austerity versus jobs debate we’ve been having in the UK, only it’s much more serious. In the US, the politics seems to prevent anything at all being done about the deficit, despite universal acceptance that it has to be dealt with.  Even the IMF, well known for pulling its punches when it comes to its largest shareholder, has been stung into issuing a rebuke by the urgency of the situation. There’s no credible strategy for stabilising public debt, the organisation said this week. Despite the fact that the US economy is judged to be growing fast enough to reduce borrowing, it is the only advanced nation other than Japan still increasing its underlying fiscal deficit this year.  But the problem goes far beyond the immediate difficulty of weaning the economy off the fiscal stimulus that helped America through the financial crisis. Underlying the immediate costs of the downturn, the US is stuck with an entitlements system which the growing demands of the ageing baby boom generation have made essentially unaffordable – or in any case, not without steep rises in taxation, an outcome that would be at odds with American traditions of rugged individualism, a small state, and low taxes.  In a report, the Congressional Budget Office summed up the problem: “Spending on social security and the government’s mandatory health care programs… will increase from roughly 10 per cent of GDP today to 15 per cent 20 years from now. If revenues and federal spending apart from those programs remain near their past levels relative to GDP, the spending on social security and healthcare will lead to rapidly growing budget deficits and mounting federal debt”.  America is deep in the mire, and seemingly lacks the leadership or political tools to dig itself out. Optimists point to the fact that the US has been here before. On several occasions in the past, they say, public debt has reached current levels relative to output, only eventually to be brought back under control. America can do it again.  Yet today’s borrowing is quite different from the type that has fed the debt mountains of the past. When the country was still young and filled with hope, it borrowed repeatedly and liberally from Europe to finance its railroads and other forms of infrastructure investment. The gamble paid off big time. But today, the debt is to fund private and government consumption. It’s just money down the drain.  The IMF has calculated that to bring public debt back onto a sustainable footing will require a fiscal adjustment over the next 10 years in terms of spending cuts and tax rises equivalent to a jaw-dropping 17.5 per cent of GDP. That dwarfs even the scale of the challenge faced by the UK, and America’s bipolar political system may make it impossible for agreement on such a consolidation to be reached.  Eventually, there will be an outright fiscal calamity in the US, and from that a leader will emerge with the wherewithal to lead the country back from the brink. Looking around the Washington scene today, though, it’s hard to see where that person will come from. Modern democracies seem to have become too compromised to produce saviours.
Both political parties have failed to come up with any credible plan to solve    this crisis, writes Jeremy Warner.