You may recall the Latin American debt crisis of 1982, the Asian debt crisis of 1997, the Russian debt crisis of 1998 - and you'll certainly remember the US sub-prime debt crisis of 2008. Now we have a European debt crisis and, horror of horrors, a US government debt crisis. That's the word to keep hold of: debt. Ignore the financiers' jargon - bond yields, credit default swaps, hedge funds - which make finance sound like quantum physics, a fearfully abstruse subject beyond the grasp of ordinary mortals. Financial crises occur when people (or governments or companies) can't repay their debts. Or more precisely when their creditors (or shareholders) decide they aren't likely to get their money back. It's as simple as that.
That, at least, is how it seems to me. But I am not an economist. In the 1990s, when the eurozone was being formed, I thought the concept flawed. If countries adopted a common currency with common interest rates set by a central bank, I reasoned, they surely needed a common government with some powers over taxation, borrowing and spending. Deprived of the power to devalue their currency, thus making their goods and services more saleable, weaker countries would face ruination without the automatic money transfers that follow from a common government with a common finance minister. That is how the US works, even though it remains a federation in which the States have considerable autonomy, and how Britain works, even after devolution. Theoretically, Wales could sell nothing at all to anybody outside Wales and still get by, thanks to benefits, services and infrastructure investment paid from London.
When I put this view, pro-euro economists told me I didn't know what I was talking about and should go away. More government was bad. The market would provide. Even two years ago, the idea that the euro would collapse without a federal government was dismissed as heresy. Now it is common wisdom. But it is too late for this to be a problem only for Greece. We are all, you might say, Greeks now.
To avoid ruination, the Greeks borrowed heavily. Having adopted the euro, they could do so at the same interest rates as countries with much stronger economies, such as Germany. The financial markets didn't seem to care that, just because Greece used the same currency as Germany, it hadn't suddenly become as wealthy and productive as the German economy. They expected that, eventually, Greece would just 'converge' with Germany because that is how markets, unimpeded by 'distortions', should work.
So banks across the world lent money to Greece - and Spain, Portugal and Italy - which can't be repaid. As we know from the last crisis, banks sell debt to each other, and then sell it to each other again and again. Nobody knows who will end up holding worthless IOUs. It could be your bank or mine. So as well as the problem with sub-prime mortgages, we now have a problem with sub-prime countries. That explains why the financial markets are in panic.
But it is, or ought to be, more than that. The whole western world is in trouble with debt: a sub-prime hemisphere, if you like. Individuals, banks, governments are all in the same boat. Who do we owe the money to? Again, thanks to the labyrinthine workings of financial markets, it isn't easy to say. But we know much of it is owed to China. The People's Republic is the largest single holder of the US government's foreign debt. This is a strange state of affairs. China, it is predicted, will become the world's biggest economy by 2020. Yet by normal standards, it is still a poor country. In GDP per capita (International Monetary Fund figures), it is 94th in the world, below Tunisia, Jamaica and Ecuador, and just above Albania. The US is seventh. The average American is six times richer than the average Chinese.
Rich countries normally lend money to poor countries, even give it to them. Here we have a poor country lending to a rich one. Instead of giving it to overfed (by global standards) Americans, why doesn't the People's Republic give it to, er, its people? Then its people would be less poor, and wouldn't have to work 95 hours a week in factories for miserable wages. Answer: because the cost of its goods would rise; Americans couldn't afford them; the people would be unemployed; and many would return to the countryside where they'd be even poorer.
What makes all this weirder is that China - since its industries, thanks to low wages and abysmal working conditions, are exceptionally profitable - has one of the world's highest rates of inward investment. So it takes money from the west, lends it back to the west, and then the west sends it back again in exchange for Chinese products. Go figure, as the Americans would say.
Nobody seems quite sure about the Chinese gameplan and the Chinese are, after all, supposed to be inscrutable. Perhaps it is to wait until the west, and particularly the US, is all but bankrupt and then to demand total subservience, which is roughly what the US did to Britain after World War 2. All I can say is that, on present form, the market isn't quite such a brilliant allocator of resources as its advocates suggest. But what do I know? I'm not an economist.
The views expressed by the author are personal