During the years of self-delusion both public and private sectors built up debt; during the latter years of panic-stricken reality the public sector took over much of the debt that households were busily running down. But government cannot now reduce its debts unless someone else is willing to increase theirs and I see no obvious volunteers.
The big problem for government is that it cannot grow its way out of debt. Individuals can work harder and earn more, companies can increase sales and so on; by being busier they raise overall output and the economy can grow. So the government has just two options: it does less or it taxes more. Either has a contractionary effect on the economy as a whole. Government is in quicksand where any move just sinks it further in. Doing less is the better option but since so-called "front-line" services are sacrosanct it appears a non-runner. A third option, being more efficient and doing the same for less, is laughable.
This is unfamiliar territory for me. I am by nature an optimistic sort of chap. Economies generally grow, stock markets rise over time with just the occasional hiccup, investors in gilts are crackpots. So there must be some way out. In Ireland, Iceland, maybe even Greece they've gone for the "brave" option, crashing the economy into reverse until it finds a sustainable size. We could do that, but for all those front-line services.
To see how this juxtaposition of a rock and a hard place might be resolved we need to and reflect on how we got here. We are not alone – many economies in the developed world have followed a similar recent history. The build-up of debt was part of a global evolution.
Global imbalances, a rather emollient description of the symbiosis through which we in the West spent the money that they in the East were busily saving, were at the root of the problem. We all knew it would end in tears but we did not know when or exactly why the process would break down. Go back to my simple economics – if we are to reduce our debts, someone somewhere needs to reduce their savings – to spend more. The good news is that someone is.
Watch the Chinese currency, indeed own some of it if you can; it's going up. Chinese growth is shifting from its mercantilist export-led model. At home, China is spending more, so much more that the Cassandras are already whingeing on about overheating. The numbers are staggering but there's a long way to go. Imbalances that have taken over a decade to build will not wind down in a hurry, but the direction is clear. As the East enjoys rising living standards and we live within our means, surplus savings and excessive debt will right themselves.
There are two snags. If this is all going to take longer than we all think, government will need to be able to fund itself in the meantime. And "living within our means" has been an alien concept for so long that our government may struggle to retain its credibility. On each front, though, there are grounds for optimism. Despite everything, the ten-year gilt still yields under 4 per cent; where government debt is the counterpart to private saving, the deficit is fundable. And while the politics are suddenly uncertain, policy risks seem firmly tilted towards excessive fiscal zeal.
When you are in the quicksand, waiting for someone with a plank is a better option than floundering. Unwinding the global imbalances will eventually resolve our problems – we can escape the quicksand and I can be an optimist again.
Peter Bickley is a consultant economist