The debt supercycle has reached its final leg

By the end of last year, UK’s national debt approached 100 percent of GDP and the fiscal deficit was over 5 percent

The Houses of Parliament are seen during a sunset in London, Britain, November 4, 2019. REUTERS/Yara Nardi

British politicians know that their workplace, the Palace of Westminster, is in a shambolic state. The 19th-century complex of buildings suffers from an infestation of vermin, falling masonry, leaking water from lead piping, and worn-out electric wiring.

There’s a constant danger of fire. Yet the occupants cannot summon up the will to tackle the problem. They shelved elaborate and costly renovation plans several years ago. Instead, the decaying structures are temporarily patched up.

Yet the longer the delay, the higher the estimated costs of the building works and the greater the risk of a catastrophic incident, Parliament’s Public Accounts Committee has warned.

There’s another challenge that Britain’s political class seem incapable of rising to. Since the pandemic, UK public borrowing has been on a sharp upward trajectory.

By the end of last year, the national debt approached 100 percent of GDP and the fiscal deficit was over 5 percent. The Office for Budget Responsibility warns that if nothing changes the public debt will reach 270 percent of annual output over the next 50 years.

A recent relatively minor act of fiscal restraint – the Labour government’s proposal to cut winter fuel payments to wealthier retirees – was reversed after it ran into fierce opposition from the party’s own lawmakers. Last month, the state borrowed a further 21 billion pounds, its highest ever monthly net borrowing (aside from the pandemic year), and 3.6 billion pounds higher than the OBR had predicted.

Britain is hardly an outlier among the large, developed economies. France’s public debt is even higher at 112 percent of GDP and last year's budget deficit was 5.7 percent of economic output.

US public debt last year reached 121 percent of GDP and its fiscal deficit hovers around 7 percent. In its latest Fiscal Monitor the International Monetary Fund exhorts governments to “put their fiscal house in order.”

In principle, sovereign insolvency is not inevitable. Governments could raise taxes, cut spending and act decisively to boost economic growth. If they took these tough measures, pesky fiscal deficits would gradually evaporate.

But the political resolve is lacking. Britain’s OBR notes that “public expectations of what government can and should do in response to emerging threats and future emergencies seem to be rising.”

French Prime Minister François Bayrou warns that his country is addicted to borrowing and just “one step away from the cliff.” Yet France’s latest, faintly comic, plan to reduce the fiscal deficit involves cancelling two national holidays, an act which is strongly opposed on both the left and the right.

Across the Atlantic, whatever savings were achieved by Elon Musk’s Department of Government Efficiency have been completely overwhelmed by President Donald Trump’s One Big Beautiful Bill Act, which the Congressional Budget Office predicts will add a further $3.4 trillion to US deficits over the next decade.

The root of the problem appears to be cultural. In his book, “The Fourth Turning is Here: What the Seasons of History Tell Us about How and When This Crisis Will End”, demographer Neil Howe posits that human societies pass through multi-generational cycles.

In the first generation, society is strong, cohesive and optimistic. The next generation experiences an “awakening” in which established values come under attack. There follows an “unravelling” as institutions weaken, civic order decays and society becomes increasingly polarised.

“Incompetent governance, ebbing public trust, and declining public compliance all feed on one another in a vicious cycle,” intones Howe. The resolution finally comes with a “fourth turning” when a new civic order replaces the old one.

Howe’s long cycle originates with the work of the 15th-century Arab historian Ibn Khaldun, who traced the rise and fall of ruling dynasties through changes in group cohesion.

By Khaldun’s fourth generation the founders’ collective spirit has become widely despised, complex laws are evaded, vast riches are hoarded by the few and “destroyers” preside over the dynasty’s collapse.

Hard-nosed financial types may find this civilisational cycle somewhat nebulous. But it appears to complement the broadly accepted notion of a debt supercycle – a multidecade period in which total borrowings ratchet ever higher.

[Edward Chancellor is a Reuters Breakingviews contributor]