What may most likely happen after what happens after what happens next?

Athenian money…defined a pattern
which was to repeat in other empires which were to follow;
dominance of trade,
influx of gold to balance exports,
 public wealth,
 liberty,
 overconfidence,
the discovery of loosely managed money
as a stimulating solution to stagnation in an economy near its zenith…
before finally the emptiness of the monetary promise was exposed,
leading to rapid national collapse.

Paul Tustain

A Greek crisis is coming to America

…this is more than just a Mediterranean problem…

It is a fiscal crisis of the western world.

…Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did.

First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped.

Second, there is a good deal of “leakage” from open economies in a globalised world.

Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect

…Explosions of public debt hurt economies in the following way, as numerous empirical studies have shown. By raising fears of default and/or currency depreciation ahead of actual inflation, they push up real interest rates. Higher real rates, in turn, act as drag on growth, especially when the private sector is also heavily indebted – as is the case in most western economies, not least the US.

…the Chinese have sharply reduced their purchases of Treasuries from around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an estimated 5 per cent last year.

…Last week Moody’s Investors Service warned that the triple A credit rating of the US should not be taken for granted. That warning recalls Larry Summers’ killer question (posed before he returned to government): “How long can the world’s biggest borrower remain the world’s biggest power?”

On reflection, it is appropriate that the fiscal crisis of the west has begun in Greece, the birthplace of western civilization. Soon it will cross the channel to Britain. But the key question is when that crisis will reach the last bastion of western power, on the other side of the Atlantic.

Niall Ferguson
Financial Times