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No real fix to the sharp rise in public debt loads, economists say

Published Aug 26, 2023 11:06AM ET Updated Aug 26, 2023 01:16PM ET
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By Ann Saphir

Jackson Hole, Wyoming (Reuters) - The steep jump in public debt loads over the past decade and a half, as governments borrowed large amounts of money to battle the Global Financial Crisis and the fallout from the COVID-19 pandemic, is probably irreversible.

That's the unhappy conclusion of a research paper being presented on Saturday to some of the world's most influential economic policymakers at the Kansas City Federal Reserve's annual central banking symposium in Jackson Hole, Wyoming.

Since 2007, worldwide public debt has ballooned from 40% to 60% of GDP, on average, with debt-to-GDP ratios even higher in the advanced countries. That includes the United States, the world's biggest economy, where government debt is now more than equal to the nation's yearly economic output. U.S. debt was about 70% of GDP 15 years ago.

Despite mounting worries about the growth-crimping implications of high debt, "debt reduction, while desirable in principle, is unlikely in practice," Serkan Arslanalp, an economist at the International Monetary Fund, and Barry Eichengreen, an economics professor at the University of California, Berkeley, wrote in a paper.

That's a change from the past, when countries have successfully reduced debt-to-GDP ratios.

But many economies will not be able to outgrow their debt burdens because of population aging, and will in fact require fresh public financing for needs like healthcare and pensions, the authors argued.

A sharp rise in interest rates from historically low levels is adding to the cost of debt service, while political divisions are making budget surpluses difficult to achieve and more so to sustain.

Inflation, unless it surprises to the upside over an extended period, does little to reduce debt ratios, and debt restructuring for developing countries has become more elusive as the pool of creditors has broadened, Arslanalp and Eichengreen wrote.

"High public debts are here to stay," they wrote. "Like it or not, then, governments are going to have to live with high inherited debts."

Doing so will require limits on spending, consideration of tax hikes, and improved regulation of banks to avoid costly blow-ups, they wrote.

"This modest medicine does not make for a happy diagnosis," they wrote. "But it makes for a realistic one."

(This story has been corrected to clarify that the size of U.S. debt is more than equal to U.S. GDP, not more than double,in paragraph 3)

No real fix to the sharp rise in public debt loads, economists say
 

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Comments (8)
Todd Gray
Todd Gray Aug 27, 2023 7:12PM ET
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I believe the public debt load, today, is still below prepandemic levels. This is manufacturing fear when there is actually nothing to fear.
Tyler Phillis
Tyler Phillis Aug 26, 2023 4:03PM ET
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The more important measure of debt load is a governments liquidity ratio. That’s the ratio between tax revenue and public debt interest payments. Last I looked, the US was at about 9 to 1, revenue to interest. For context, a completely responsible government would survive on tax revenues alone and borrow sparingly or not at all. The liquidity ratio of such a government would usually be infinite. The US is closer to bankruptcy than not.
Tyler Phillis
Tyler Phillis Aug 26, 2023 4:03PM ET
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This is why central banks always lose control of inflation, and why governments that are allowed to interfere with the economic freedoms of their citizens always collapse.
Brad Albright
Brad Albright Aug 26, 2023 4:03PM ET
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Close to bankruptcy if that ratio is static, which of course it is not and can be affected on either the revenue or borrowing side -- or both. You'll have to find another reason to hope for America's demise.
Don Getty
Don Getty Aug 26, 2023 3:17PM ET
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support Ukraine or send kids to fight in poland - your choice - putinski needs to be stopped and a message needs to be sent to china, iran and NK - the solution isn't complaining about ukraine its raising taxes on the ultra rich and corps - not all that complicated
Alan Rice
Alan Rice Aug 26, 2023 1:33PM ET
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And yet The US seems to be content to finance other Country's wars.
Don Getty
Don Getty Aug 26, 2023 1:33PM ET
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support Ukraine or send kids to fight in poland - your choice - putinski needs to be stopped and a message needs to be sent to china, iran and NK - the solution isn't complaining about ukraine its raising taxes on the ultra rich and corps - not all that complicated
Joe Ruscigno
Joe Ruscigno Aug 26, 2023 1:06PM ET
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We need more regulation of banks? Who's going to do that, the jackasses that piled up all the debt?
Brad Albright
Brad Albright Aug 26, 2023 1:02PM ET
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From the paper cited in this article: US "debt in the hands of the public of roughly 100 percent of GDP." That is not double. Investing.com should pull this article unless and until it is corrected.
Brad Albright
Brad Albright Aug 26, 2023 1:02PM ET
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To all those who down voted because they prefer aligning America with misinformation, the article has been corrected. America haters lose again.
Warm Camp
Warm Camp Aug 26, 2023 12:50PM ET
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Increase in “public debt” is a mainstream government policy, not an exception. This policy allows governments to enslave the public, and governments love this.
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Brad Albright
Brad Albright Aug 26, 2023 12:50PM ET
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So, what specific freedom is it you contend people in the US are deprived of?
Warm Camp
Warm Camp Aug 26, 2023 12:50PM ET
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Brad Albright  Still don’t get it? The freedom to earn and keep money, and don’t spend the money on freeloaders. The freedom to run a business, disregarding what wokeish fools like you say about this. Basic rights, which created human civilization.
Brad Albright
Brad Albright Aug 26, 2023 12:50PM ET
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In the U.S. of A., we have the freedom to earn and keep money, it's one of the reasons people flock here. If you are contending that people have a RIGHT, not to pay any income tax, specifically (you are a vague writer), that has been adjudicated by the U.S. Supreme court and our elected Congress, an income tax does not infringe upon personal liberties. But, quite unlike other totalitarian and authoritarian, We The People decide how much, from whom and to what. In truth, we could even abolish it if we wanted to. That's freedom.
Warm Camp
Warm Camp Aug 26, 2023 12:50PM ET
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Brad Albright  Your interpretation of “freedom” means that “we” can do anything with individual rights. That’s what is called slavery, or in your specific case, trivial fascism.
Brad Albright
Brad Albright Aug 26, 2023 12:50PM ET
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Warm Camp LOL. Do you hear yourself? You are arguing against the meaning of words. You've failed.
Brad Albright
Brad Albright Aug 26, 2023 12:06PM ET
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This is absolutely incorrect as can be confirmed at the website of the Saint Louis Fed. U.S. debt to GDP is about 120%, not double, as reported. I expect we'll see a correction soon: "That includes the United States, the world's biggest economy, where government debt is now more than double the nation's yearly economic output."
Brad Albright
Brad Albright Aug 26, 2023 12:06PM ET
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To the America haters who down-vote facts because they prefer maligning America, even if with falsehoods, the article has been corrected and you lose -- again.
 
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