I don’t enjoy the prospect of people being thrown out of work. I don’t relish the prospect of people being squeezed by higher taxes. There is no bliss for me in people having to work longer to draw a pension. I cannot find a crumb of merriment at abandoning alliances around the world. Yet all these things are now inevitable, in my eyes, if we are to get out of this mess in the West and go on to thrive. 

People have printed and said all kinds of malevolent things about the ratings agencies themselves today in the aftermath of the US downgrade. The report of the US Financial Crisis Inquiry has been waved around by many; so have longer and deeper held suspicions about the ability of private institutions to effectively regulate anything. Yet S&P, in many ways, are behind the curve. The damned-near run thing with the debt ceiling had already set the market’s mind - the possibility of a US default had moved from the impossible to the merely unlikely. This downgrade reflects that - the warnings from the other two main western agencies are the same. Whilst I share many reservations about the operational effectiveness of the agencies, I do not doubt that they are right on the message of this one.

Here in the West, we’ve been borrowing for years - we’ve been borrowing to fund trade, we’ve been borrowing to fund government and we’ve been borrowing to found houses, cars, credit cards and a myriad array of personal, corporate and state debt to prop up our life styles. We now have come to the stage where we’re being brought to book for this by the same financial markets we liberalised back in the 1980s. There is something grimly poetic about the excess of states being brought to a juddering halt by the markets they themselves unleashed. 

We now have to pay up. That means we have to cut today, and tax today. The baby boomers - who’ve had cheap and early pensions, free university education and a whole array of benefits - need to share the pain that they’ve run up. Yes, it will hurt. There is no way to sugar this pill, there should be no attempt to run away from the fact that we are only going to get out of this is through a colossal amount of extremely painful and jarring changes to our society as a whole. This means more than cutting government services - this means cutting back on personal and corporate debt. This is going to mean people are going to find themselves less able to afford things - real incomes for many in the West have been stagnating for a while now. We’re going to have to address this fundamental problem. 

It’s all too easy to paint those who demand that we live within our means as cruel, heartless individuals. Yet by that same caricature over the years, we’ve often ignored those who have most effectively warned about this. If the last British government had chosen to fund its public investments through taxation rather than persistently running deficits, or properly regulated banks - if the previous US administration had avoided two wars, two tax cuts and a Medicare plan that were all unpaid for - if, if, if. We’d not have to face the pain of today and tomorrow if we’d been more prudent and more clear-minded yesterday. But here we are, and we cannot duck this.

Either the West will try and muddle through, or we have to face the axe and get on with this painful task. Muddling through - slowly eroding our deficits and tweaking with the financial system - isn’t good enough. We need to change tax systems, reduce spending and dramatically reform our economies so as to address this. Perhaps in doing so we can find some spare capital from government coffers - which will need to be spent on education, science and infrastructure. In the meantime, though, we are going to have to accept that we’ve got to pay the bills of the last few decades - if we don’t pay them now, when the final crunch comes it will be a thousand times worse. 

If this doesn’t hurt, it won’t work. But if we don’t hurt today, then we may not have enough of a tomorrow to regret it. I don’t want the West to fall from grace - I want it to get a grip, get its house in order and return to fight another day. I still want an American flag first to Mars, I still want British children to have the best education in the world and I still want to grow up in a country where people can rise and fall on their own merits. But I don’t think we’re ever going to get to that stage if we don’t get a firm grasp now. As I’ve said before about the US economy - we need to change entitlements to reflect rising life expectancy, we need to change tax systems to reflect changing distributions of wealth, we need to change economic models to encourage competition and transparency and we need to start looking long and hard at everything we borrow to buy and ask “do we have to have this?” If we don’t, then our children may never be able to afford it in the first place.

Yes, this is gory reading. No, I don’t think it’ll be fun. But either we take heed of what S&P and China and the markets are saying and put ourselves in order - or we resign ourselves to insignificance in a world dominated by other powers. None of whom, I can assure you, will put our interests first.