Welcome to the club. Last week, Standard & Poor's downgraded - get this - United Kingdom government bonds. Panicked chatter then went through US financial markets that American bonds would be the next to fall. Interest rates on US treasury paper surged.
It's easy to see why. Governments are spending like sailors on shore-leave. In just a few months, some of the world's richest countries have gone from being scolds to being paid-up (that is, when the debts come due) members of the up-to-your-ears club. Japan tops the league table: with a debt to GDP ratio of around 200 per cent, it makes Jamaica look like a miser. Britain is closing in on 100 per cent. America is headed in that direction.
In our habit of decrying the International Monetary Fund (IMF) as a rich man's club, we forget that the IMF has, on occasion, been approached by rich countries for help, as it was by Britain in the 1970s. The same may happen again. And if it does, the medicine will be as bitter as we expect.
Threat and an opportunity
But this is more than an incidental opportunity for us to gloat. There is both a threat and an opportunity in this state of affairs. The threat is that if business at home continues as usual, it could get dire. With long-term interest rates set to rise in the industrial countries, our debt repayments would increase at the very same time that, in the face of a deepening recession, we are having to cut expenditure. The news is bad. It will get worse.
But what if? Willingly suspending disbelief, let us imagine a situation in which Jamaicans got together and decided not to 'stimulate' our way out of a recession (CaPRI research already shows that isn't going to happen, save at the price of runaway inflation). Instead, we acted against instinct: we cut back.
Supposing the Government decided to eliminate its deficit, and arrest the growth of debt. What could happen then is that by enabling future growth to reduce the debt to GDP ratio, we would suddenly go against the tide of the major countries. Why this could matter is because I'm not convinced the stimulus packages introduced in some of the major countries, and particularly the US, are going to have an immediate effect. Because of household deleveraging - paying down debts, building up savings to replace the wealth lost in the housing-market crash - I expect much of the money being pumped into the US economy will find its way into saving accounts. Already, we are seeing an increase in deposits in the US banking system.
But because the US money supply has increased so quickly, the dollar is under pressure. If it continues devaluing, Americans will look to defend their new-found savings by shifting some of them offshore. Already, this trend is emerging too: money has been flowing from the US into emerging markets.
Painful adjustment
It will flow to those countries which, relatively, do a better job defending the value of investments - in part, with sound macro-economic fundamentals. After a period of painful adjustment, it is conceivable that Jamaica could, by cutting its debt, position itself for the next big wave of capital flows to developing countries.
Getting from here to there will not be easy. Conventional wisdom here remains that fiscal austerity is pro-business, government largesse pro-poor. In fact, if government spending aids business but fuels inflation - and that's often the way it works out - it hurts the poor and helps the rich. If, on the other hand, fiscal austerity is combined with effective social programmes, it might be possible to bring about truly pro-poor growth.
John Rapley is president of the Caribbean Research Institute (CaPRI), an independent research think tank affiliated to the University of the West Indies, Mona. Feedback may be sent to columns@gleanerjm.com.