Featured Diary: Traditional Debt Management Issues Should Be Important Public Policy Concern
Steve Urkel.
Posted to Politics on Tue Jan 26, 2010 at 11:22:00 AM EST (promoted from Diaries by port1080). RSS.
Rogoff and Reinhart examine the effect of public debt on economic growth: "Across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. In addition, for emerging markets, there appears to be a more stringent threshold for total external debt/GDP (60 percent), that is also associated with adverse outcomes for growth. Seldom do countries simply "grow" their way out of deep debt burdens."
Gross government debt in the U.S was at 85% of GDP in 2009 and is projected to reach 108% of GDP by 2014.
"Over the past two centuries, debt in excess of 90 percent has typically been associated with mean growth of 1.7 percent versus 3.7 percent when debt is low (under 30 percent of GDP), and compared with growth rates of over 3 percent for the two middle categories (debt between 30 and 90 percent of GDP)."
"Of course, there are other vulnerabilities associated with debt buildups that depend on the
composition of the debt itself. As Reinhart and Rogoff (2009b, ch. 4) emphasize and numerous
models suggest, countries that choose to rely excessively on short term borrowing to fund
growing debt levels are particularly vulnerable to crises in confidence that can provoke very
sudden and "unexpected" financial crises. Similar statements could be made about foreign
versus domestic debt, as discussed."
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