Why global debt catastrophe fears are wrong
Debt spirals, doom loops and default danger – pundits fret all of these and more as US federal debt tops $40 trillion. They see profligate politicians and climbing long-term interest rates soon rendering the world’s largest economy penniless. Europe and Japan are not much better off, they claim. The facts argue otherwise, however. Measured correctly, global debt is down over the last decade. Yes,…
Headlines claim global debt catastrophes are inevitable, but the facts paint a different picture. Despite US federal debt surpassing $40 trillion, worldwide debt has actually decreased over the past decade. Debt-to-GDP ratios in the US, Europe, and Japan have all fallen compared to their peaks. Central banks' monetary policies during the pandemic created inflation, which makes existing debt cheaper to repay and boosts the tax base.
As a result, global public debt-to-GDP has declined from 111.5% to 95.6%. While federal government debt may seem alarming, it is actually less risky than household and corporate debt. Additionally, US municipal and state debt has decreased from 21% of GDP in 2010 to 11% now. Even though US federal interest payments are rising, tax receipts still cover these costs five times over.
Interest payments on US debt now represent a similar share of federal spending as in the late 1980s and early 1990s. Global debt service remains affordable, with even France spending only 10% of its tax revenue on interest – similar to the UK and Italy. While some argue that US federal interest costs are increasing with bond yields, historical evidence shows that even during high-interest periods, economies and stock markets flourished.
Prognostications of a global debt catastrophe are unfounded; debt levels are not at an unprecedented tipping point.
Written by urgent.news from The National Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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