Tutorial, Lecture, Statement
Public Debt: how much is too much?
- High debt sustainability concerns persist despite consensus views, with macroeconomic borrowing expected to diminish until reaching global financial crisis levels.
- Austerity measures during economic weakness are predicted to cause severe economic damage, potentially reducing tax revenues to unworkable levels.
- New economic thinking suggests governments can borrow significantly more than previously assumed, with falling interest rates making government bonds inexpensive for many nations.
- Nations may effectively grow out of debt at no fiscal cost if GDP expansion exceeds interest accumulation, provided additional borrowing is controlled.
- The persistence of low interest rates is uncertain, with no certainty regarding a future reversal, which could place heavily indebted countries in significant trouble if rates suddenly spike.
- Cutting deficit spending while the global economy remains severely impacted by the pandemic is expected to inflict lasting damage.
- The extent and duration of future borrowing capacity remain unclear despite the ongoing necessity to borrow.
- Debt accumulated over the past six months is projected to become a major, lasting legacy of the pandemic.