No real fix to public debt loads.28 Aug 2023 08:57
"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.
Despite mounting worries about the growth-crimping implications of high debt, "debt reduction, while desirable in principle, is unlikely in practice,"
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.
"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."
In short then….
High debt rates are here to stay.
Current inflation rates won't inflate government debt away.
Future Government spending restrictions are here for the long-term as the debt levels become increasingly difficult to service.
Improved regulation of banks (whatever that entails).
Many economies will not be able to outgrow their debt burdens.
As usual, don't listen to politicians.
https://www.reuters.com/business/finance/no-real-fix-sharp-rise-public-debt-loads-economists-say-2023-08-26/
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