Private and public debt in the Eurozone increased since the 2000s, and especially so in certain countries. This column presents evidence that high levels of private and public debt, together with deleveraging of all sectors, are especially harmful for economic growth. Private sector debt is more detrimental to growth than public sector debt. Therefore, policies aimed at reducing the private debt could yield important benefits.Read more ›
Post Tagged with: "government debt"
Newman: “in my own book the explanation starts the cycle with government spending, thus adding to the money supply, and then issuing treasuries for roughly equivalent amount. The bond vigilantes really have it backwards.Read more ›
I have been arguing for several years that once China begins the adjustment process, which I expect to characterize the ten-year period of the current administration, growth rates must slow significantly. My expectation for long-term growth is that it shouldn’t average much above 3-4% annually. This is what it will take for household consumption to rise to roughly 50% of GDP in a decade if consumption growth can be maintained at its historic rates of around 8%.
But I always warn that this is likely to be an upper limit, not a lower limit, to growth The key is whether or not it is possible to maintain current levels of consumption growth once investment growth is sharply reduced. A recent paper by the IMF on the topic is very interesting and not encouraging.Read more ›
Japan is stuck in a shrinking population trap, and neither monetary nor fiscal policy will adequately solve the problem. Continuing to run fiscal deficits in a deflationary environment will only means that government debt is pushed onward and upwards leading to a variety of possible scenarios as to what the end game will finally be. Reining in the deficit, by raising consumption tax, for example, will probably only make deflation worse with a one year time lag, as happened in 1997, and will almost certainly force the economy into more economic shrinkage which in any event makes the debt issue worse.Read more ›
Spain’s 10-year bond yield has fallen 108 bp this year. Just above 4%, the yield is the lowest Q4 2010. The 2-year yield has fallen 93 bp this year. The yield is slipping through 1.70%, for the first time Q2 2010. Recent data suggested that Spanish banks have been the featured buyers of Spanish bonds. The Spanish government released data at the end of last week that we have poured over. These figures paint a strikingly different picture. Spanish banks have indeed bought Spanish debt, but non-residents bought even more in Q1.Read more ›
The reality of course, is that euro zone governments do have to worry about losing market favour. They cannot rely on the central bank as a debt buyer of last resort the way the Japanese, the British or the Americans can. If, for whatever reason, sovereign debt buyers become skittish about euro zone sovereign obligations, the impact is immediate and yields rise. In a worst case scenario, you get a crisis and default as we did in Greece. So the impetus to keep sovereign debt levels manageable is clear. This makes the euro zone different from other currency areas that have currency sovereignty and flexible nonconvertible currencies.Read more ›
Reinhart-Rogoff’s paper has more serious flaws than an excel error. And austerity hysteria will not go away after Herndon-Ash-Pollin’s review. This is my message to you.Read more ›
I was on the Daily Ticker with Lauren Lyster talking about Japan yesterday. My view is that there is no material negative change in Japan’s sovereign debt outlook nor will there be in the medium term because of Abenomics. The video is at the bottom of this post. Before you watch it let me say a little bit about why I take this view on Japan and speak more generally about government debt and deficits. Mike Konczal wrote a post that is getting a lot of buzz on high deficits and Reinhart and Rogoff that will be a good jumping off point for discussion.Read more ›