Mr Hockey said the last White House administration to live within its means was that of Democratic president Bill Clinton, which ran a budget surplus in 2001.
“The Republican Party has been screaming about rising debt levels of the US government. When they were in control the White House, the House of Representatives and the Senate, the US deficits grew larger and the US government debt grew bigger,” he said.
“It’s too hard, politically, to stop borrowing money. They all run the political charades of implementing a debt ceiling or closing down the government because it has run out of money. That’s base political opportunism.”
As a result, even though the US capital market was the world’s most important, and the country’s markets were still the go-to safe haven, “the risk of default has unquestionably increased”.
“The US keeps going because the US dollar is the default currency of the world. Until it’s not. And you can see other countries starting to gather around alternative currencies. I think markets are more liquid and wider and broader than ever before. So it can come to an end,” he said.
He said the disastrous, 49-day UK premiership of Liz Truss last year showed what could happen when markets lost confidence in a Western government, and “I think that’s coming”.
“It comes to a head. I don’t want to be scaring people, but it will come to a head in one form or another. And the question is how people respond at that time,” he said.
He acknowledged that the US dollar offered liquidity, certainty and stability that was unavailable from other currencies such as China’s yuan, but “there is a risk element”.
A “glimmer of hope” in the US was that President Joe Biden’s Inflation Reduction Act, which committed an additional $US433 billion ($684 billion) in new spending on pharmaceuticals and climate change initiatives, also included tax measures to pay for it.
“I can’t get excited about increased taxes … tax increases are a handbrake on economic growth,” he said. But “the only alternative to increasing tax is to either postpone the burden by borrowing more money today, or to spend less, and spending less is clearly not happening”.
He said the cost of servicing US government debt in two years’ time would exceed the size of the country’s defence budget; and in three years’ time the interest repayments would exceed spending on Medicare. “America is strangling itself with debt,” he said.
