"If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has." John Maynard Keynes If Keynes was right, the world's creditor countries have a huge problem and the US none at all. Yet the assumption that the creditors should be more terrified than the debtor is wrong if the latter needs to continue borrowing. If creditors face an endless stream of additional borrowing and a good chance of default at the end of it, they should refuse to throw good money after bad. They will then impose huge costs on the debtor.

This balance of financial terror, as it has been called, characterises the current huge flows of finance to the US. Carefully thought through economic policy is needed if the world is to extricate itself from this predicament. Alas, we can rely on the administration of George W. Bush not to provide it.