Der Spiegel has an excellent graphics feature on the global debt crisis. The sovereign debt situation among the developed economies is truly staggering. It is now clear that the past two decades of the Great Moderation, was atleast partially, driven by a spectacular build up of debt.
One of the macroeconomic policy contributors was the deliberate policy of keeping interest rates at ultra-low levels for an extended period of time.
The crisis-ridden Eurozone economies have debt-to-GDP ratios that are way above the danger mark. Except for four smaller economies, the ratio is above the Maastricht Stability Pact limt of 60% of the GDP.
The US public debt has exploded since the turn of the century, driven by the Bush-era tax cuts and structural problems related to health care costs for an aging population, and continues to grow with the fall in revenues due to the Great Recession.
The revenues and expenditures of the US government is heavily unbalanced...
The ultra-low interest rates, its "exorbitant privilege" (the fact that the US borrows in its own currency), and the unmatched safety and liquidity offered by US Treasuries mean that the debt concerns were manageable. However, now with the debts burgeoning, economic weakness and high unemployment persisting, and the government's commitment to repay debts questioned with a sovereign debt ratings downgrade, the debt situation raises serious concerns.
Among the foreign creditors, the Chinese Central Bank stands out. Though there is little serious concern about them pulling out, the long-term implications of recalibrating sovereign debt portfolios is not in the interest of the US economy.
If there has to be one villain of the piece in the great American debt story, it has to be George W Bush!
James McDonald has this essay in FP magazine which chronicles the rise of the debt overhang among Western economies, though he appears to confuse the policies that led to this state with Keynesianism. His arguement that more borrowing may not be part of the solution is debatable. Since he himself admits that the private sector is in no position to handhold the recovery, is there any alternative source of growth other than the government? See also this and this.