Recently the Federal Opposition's new finance spokesman, Senator Barnaby Joyce, decided to warn all and sundry about the potential for both the US Government, and some of Australia's State Governments, to default on their debt obligations. Should such a thing occur, Senator Joyce opined, then the ensuing financial panic might make the crash of 2008 seem little more than a blip.

The Prime Minister's reaction to Joyce's statement was a predictable accusation of unnecessary alarmism, yet to some economic analysts out there, the risk of government (or sovereign) default is unfortunately both real and high. In the USA's case, the problems caused by excessive private debt (eg the subprime loan crisis) have been 'cured' via its replacement with unprecedented levels of public debt. This means that American taxpayers for generations to come will collectively bear the burden of repaying the excesses created by certain players in the banking and financial spheres.

US Government debt is approaching 80% of Gross Domestic Product, and could soon exceed 100% if programmes like President Obama's healthcare reforms are enacted. At present, saving nations like China and Japan remain willing to keep lending American consumers the money they need to maintain their credit fuelled lifestyles. Should this attitude change, however, US borrowers will have to pay a great deal more for loans – and the US dollar could plummet on world currency markets. Cynics point out that its recent weakness is but the beginning of a much greater devaluation.

Unlike Australian States, one weapon President Obama and his financial advisers always have is the option of literally printing more US Dollars as a last ditch method of repaying problem loans. This would almost certainly result in galloping inflation, but this may be seen as the lesser of two evils when compared to a default.

For the increasingly indebted States of NSW and Queensland, however, money printing is not an easy way out of repaying loans. If Premier Anna Bligh cannot sell off her State's rail assets, and Premier ... of NSW (best to leave the name blank in this case!) fails to convince the unions to agree with the privatisation of power assets, then both our Northern States will struggle to repay their existing debts. One solution to this is higher state taxes, on activities like property purchases, payrolls and gaming, but pushing these too high invariably causes emigration to less financially burdensome parts of the country.

A more likely alternative is that the Federal Government will be asked to pick up the tab for Queensland and NSW's excesses. And this of course means either higher federal taxes or increased Commonwealth debt – which simply means higher taxes (and, therefore, reduced welfare) in the future.

Like the Americans, we may soon discover the consequences of living beyond our means. How odd it should take the often extreme Barnaby Joyce
to point out this simple truth.