The Perils of Debt Complacency

Written on September 30th, 2016 in politics Comments Off

Published on Project Syndicate.org, by Carmen Reinhart, Sept 28, 2016.

CAMBRIDGE – “What a government spends the public pays for. There is no such thing as an uncovered deficit.” So said John Maynard Keynes in A Tract on Monetary Reform.

But Robert Skidelsky, the author of a magisterial three-volume biography of Keynes, disagrees. In a recent commentary entitled The Scarecrow of National Debt, Skidelsky offered a rather patronizing narrative, in a tone usually reserved for young children and pets, about his aged, old-fashioned, and financially illiterate friend’s baseless anxiety about the burden placed on future generations by the rising level of government debt … //

… It is difficult to imagine a sustained revival of Greek growth without another round of haircuts and debt forgiveness from Greece’s official creditors, which now hold most of its debt. Italy depends critically on the continued large-scale purchases of its bonds by the European Central Bank (its Target 2 balances have recently climbed, reflecting capital flight). The Bank of Japan is going to greater and greater lengths to orchestrate an increase in inflation expectations and price growth, which can help erode the value of outstanding debts. (“For inflation is a mighty tax-gatherer,” as Keynes observed.) Other countries, like Portugal, are also struggling with low growth and weak fiscal positions.

Concerns about debt levels (public and private) have now extended beyond the advanced economies to many emerging markets. I cannot recall an instance of a government that is concerned about having too low a level of debt. Perhaps, it is because the debt scarecrow has teeth.

Skidelsky needs no reminder of the historical record, but it bears noting that more than a dozen advanced economies received debt relief in one form or another during the depression of the 1930s. The approach to unwinding current debts is likely to vary considerably across countries, but it is time to place greater emphasis on debt restructuring (which comes with a menu of options) than on accumulating more debt.

(full text, graph).

(Carmen Reinhart is Professor of the International Financial System at Harvard University’s Kennedy School of Government).

Governments Dept related Links:

Other Links:

One Month in Clausnitz: A Visit to Ground Zero of Refugee Anxiety – part 1, on Spiegel Online International, by Takis Würger (text) and Sven Döring (photos), Sept 28, 2016: the village of Clausnitz in Saxony became shorthand for the ugly, xenophobic side of Germany after residents threatened a bus full of refugees. We spent a month in the town in an attempt to find out what happened;
Part 2: We’re Not Staying Here in the Jungle;
Part 3: A Mayor in Tears;
Part 4: Blanket Suspicion.

uploaded by TRNN LIVE;

Why Oil & Gas Prices are dropping – Richard Wolff, 19.14 min, uploaded by Peak oil, Sept 16, 2016 – (Peak oil could  be in 2020);

The Democratic National Convention DNC, July 2016:

In german / auf deutsch:

Was tun gegen Volksverdummung? – Andreas Popp, 16.36 min, von Dawa Ulm am 28. Sept 2016 … zum Buch:

von Dawa Ulm:

von Der Wassermann Unzensiert:

… and this:

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