Ambrose Evans-Pritchard

Spending by the US federal government has seen the steepest drop as share of national income since demobilisation after the Second World War.

Claims that President Barack Obama is bankrupting America with a lurch towards hard-Left statism are for tabloid consumption only. Outlays have fallen from 24.4pc to 20.6pc of GDP in five years. Spending is roughly in line with its 40-year average. This fiscal squeeze has been achieved without driving the economy into a Lost Decade, a remarkable feat.

The US Congressional Budget Office expects the budget deficit to drop to 2.8pc of GDP this year, and 2.6pc next year. This is about the same as the eurozone but with a huge difference. The US economy is expanding fast enough to outgrow its debts.

The US energy revolution is, of course, half the story. Francisco Blanch, from Bank of America, estimates that shale gas and oil have given the US economy an extra tailwind worth 1.9pc of GDP — what he calls the “energy carry” — with effects rippling through industry. New investments in ammonia plants are rising at an exponential rate, thanks to natural gas prices that are a quarter of Asian levels.

The US transferred more than $3trillion to oil exporters from 2001 to 2008. That chapter is closed. The US is back to where it was in 2000 with an energy deficit below 2pc of GDP and improving every month, while the eurozone is at minus 4.4pc and getting worse, and Japan is at minus 6.3pc.

The US has added 2.5m barrels a day of crude output over the past three years, almost as much as the next three countries combined. America covered a quarter of its oil needs in 2007. It covers well over half today. It has overtaken Russia to become the world’s biggest exporter of refined petroleum products.

For over half a century the US has been losing part of its industry with each recession. A study by the International Monetary Fund found a very different pattern this time. Manufacturing has recovered quickly, led by machinery. America’s global share has stabilised at 20pc. China’s share has also stabilised, at the same level. The two superpowers are competing toe-to-toe. China is no longer gaining.

Yet the other half of the story is monetary stimulus a l’outrance — quantitive easing — to prevent fiscal tightening setting off a downward spiral, which is what occured when the European Central Bank raised rates twice in 2011 before recovery was entrenched, setting off the catalysmic crisis that nearly destroyed EMU in mid-2012.

America’s public debt (held by the public) has peaked at 72.3pc of GDP. The CBO expects the ratio to fall gently for the next three years. Such is the magic of the denominator effect. Economies do not have to cut debt in absolute terms to whittle away debt. The Romanian dictator Nicolae Ceausescu thought otherwise and assiduously paid off Romania’s debts just in time for his own execution in 1989. Those shaping eurozone policy today sometimes seem to be in thrall to this atavistic belief.

Growth does the job so much faster. US household debt has plummeted from 98pc to 81pc of GDP in four years. The ratio of debt payments to disposable income fell to 9.9pc in March, the lowest since the Federal Reserve’s modern data series began in 1980. Most mortgage debt is locked at fixed interest rates so this will not change fast when the Fed tightens in earnest.

Charles Dumas, from Lombard Street Research — author of The America Phoenix in 2011, before it was fashionable — says the mix of “soaring household wealth” and lower debt burdens leaves the US poised for a surge in consumer-led growth. He predicts a mini-boom, lasting until 2016.

Much of the debt has been cut by defaults, chiefly by homeowners walking away. You can do this in most US states, and rightly so. America’s bankruptcy doctrines evolved with the injustices of colonial debt servitude still in the collective mind.

James Madison argued in The Federalist Papers that treating debtors as criminals impeded risk-taking and commerce. A series of bankruptcy laws in the 19th Century gradually broke the lockhold of creditors, with explosive effects on US economic dynamism.

Much of Europe still clings to late- Medieval notions of debt sanctity, with laws to match. In Spain the banks can sieze all your current and future assets if you cannot pay the mortgage, adding the legal costs of foreclosure for good measure. Leaving aside the morality of state coercion to uphold the interests of creditors, this practice is inefficient. It blocks the cleansing process of boom-bust cycles, trapping economies in excess debt.

Data from the OECD shows that the varied effects of Europe’s debt laws and contractionary policies led to jumps in public and private debt by 30pc of GDP in Spain, 33pc in Holland, 34pc in Italy, 51pc in France, 71pc in Portugal, and 151pc in Ireland, between 2008 and 2012.

It is true that bond yields have tumbled to record lows across the EMU debtor bloc this year but that is not in itself recovery. What these yields chiefly reflect — now that the ECB is acting as lender-of-last-resort to backstop Club Med debt — is that EMU is close to deflation and unlikely to grow vigorously for a long time.

Five years after the Lehman crisis, US output is climbing to new peaks and unemployment is 6.7pc. Euroland’s jobless rate is stuck at 12pc. Austerity is not the variable. The US fiscal squeeze has been just as draconian. “The difference is largely explained by relative monetary policies,” said Mr Darda. The Fed kept nominal GDP on an even keel. The ECB did not.

The predictions of American decline that had such resonance five years ago already look oddly dated and unreal. The concept of the BRICS no longer has any economic meaning. Brazil and Russia fell by the wayside long ago. India is decades away from any real challenge. Only China counts. History is full of such false declines.

Informed opinion thought Britain finished after losing America, but it was actually France that was ruined by the Revolutionary War. Britain was at the threshold of its greatest days. The Roman Empire seemed beyond redemption by the early Second Century. Yet that black era was instead the precursor of the Antonines, 80 years of stability and wealth.

America’s governing institutions still work well enough. There is no necessary reason why it cannot enjoy its own Antonine age into the middle of this century.