Meltdown of American debt something we should all fear
Does anyone remember a time when western countries actually ran budget surpluses? The last time the US managed it was in 2000, while Germany managed one as recently as 2008.
For Ireland one has to go back to 2006 to find such a feat of fiscal discipline, while remarkably France hasn't balanced the books since 1974.
We've all become used to countries living beyond their means, but as long as the issue was confined to Europe it could be managed through a combination of bailouts (Ireland, Greece and Portugal), fiscal austerity (Spain), export-led growth (Germany), currency devaluations (Britain) and so-called burden sharing with creditors (Iceland).
But while one debt crisis is a manageable mistake, a second debt crisis smacks of carelessness (not to mention danger).
In that context, the emerging pressures on the US in relation to its budget deficit should concern us all, even in Ireland.
The US projected budget deficit this year will come to 10.8pc of GDP, which is just a touch higher than Ireland's own shortfall this year of 10.5pc.
Until this week the conventional market wisdom had it that the US could successfully whittle this deficit down gradually, without damaging its own economy and more importantly the rest of us.
Up to now two rounds of quantitive easing were regarded as acceptable and the US was seen as effectively providing stimulus to the rest of the world, without any long-term cost, seeing as the country cannot ultimately default as it can print money if it really needs to.
But the decision by Standard & Poor's this week to downgrade the outlook for US debt means all bets are off and western economies are now officially dealing with two debt crises, both intractable and both likely to have knock-ons if they get worse for banking systems.
The US has outstanding public debt of $14.3trillion, which is a whopping debt burden, likely to represent 110pc of GDP by 2016, just below the proportion of debt Ireland will be dealing with within a few years.
In Ireland there is at least some consensus on getting the debt down, but the US is paralysed with Republicans vetoing tax hikes and Democrats vetoing cuts in expenditure. Political gridlock in Washington literally means economic gridlock.
Clearly a loss of its AAA status would be a big negative for the US, ultimately ushering in higher interest rates and lower growth, which would have knock-on consequences for the world economy.
But the problem with the US is that this $14.3tn of debt is so widely distributed throughout the global financial system that if it loses its AAA rating, it would in one fell swoop weaken -- at least on paper -- the balance sheet of virtually every major company and bank in the industrialised world.
Irish companies and banks, for instance, hold $42bn (€29bn) of US Treasury bonds, according to the most recent figures.
The dollar would also take a plunge if the US lost its AAA rating, which would be poisonous for Irish exports, with about a fifth of them going state-side. In terms of US multinationals, a tumbling dollar would also make Irish wages look expensive when translated into dollars.
At the most extreme there could be a wholesale abandonment of dollar assets worldwide.
This might not be bad for those first out the door, but it would be very bad for those who aren't allowed to shed assets overnight and who have to hold them until maturity.
Either way Ireland has a vested interest in seeing US President Barack Obama agree a credible deficit reduction plan with Republicans (Tea parties or not) sooner rather than later.
From an era where Ireland had to choose between Boston and Berlin, Ireland must now look to both cities for clues to its own future.