America’s Faustian Pact with runaway debt is coming due

The consequence of that policy error was the long slump of the 2010s, compounded by the even larger policy error of Europe’s Lost Decade.

Mistimed and self-defeating austerity forced central banks to compensate with unhealthy levels of QE. Today’s malaise across the Western democracies is rooted in that unhappy episode.

This debt deal saves Biden’s grand green plan (IRA) – nominally $369bn but in fact open-ended. House Republicans have acquiesced after much bluster, both because they secured a stay of execution for oil and gas and because pork barrel politics trumps ideology in Washington.

Two-thirds of the tax credits and subsidies for big solar, big wind, electric vehicle plants and the “battery belt” go to their districts.

This entails further indebtment – but at least some of these projects have a fiscal multiplier above 1.0 and therefore pay for themselves economically through the denominator effect. They are in any case central to the struggle with China for clean-tech ascendancy, leaving aside the climate imperative.

The debt problem lies elsewhere: in ringfenced entitlements that have risen from around 50pc to 75pc of all US federal spending over the last three decades. This compares to 33pc in “socialist” Sweden, or 54pc in “social market” Germany, according to Eurizon SLJ.

They include social security (pensions), Medicare (healthcare for the retired) and Medicaid (for the poor), student loan programmes, etc. They are on an unsustainable trajectory over the next 20 years.

To the extent that there are cuts of around $130bn in the debt deal, they fall on the diminishing areas of “discretionary” spending such as transport, which are critical for long-term economic growth.

The accord basically kicks the issue of US solvency into touch for another two years.