Countries pile up record amounts in debt amid COVID-19

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  • Government debt and deficits have hit records during the pandemic.
  • Many experts argue that it is a good means of financing the recovery.
  • Such lending has continued to be enabled and encouraged since the financial crisis thanks to the efforts of the central bank.

When government debt in the US recently peak not achieved since WWII, something funny happened: the public didn’t really seem to do that spirit.

The debt burden in the US has only continued to rise, exceedance the size of the country’s economy as measures are enacted to To kiss the impact of COVID-19. The US is not alone – governments around the world have borrowed heavily while striving counter the pandemic. While this doesn’t necessarily come as a surprise, the relative modest reaction among conservatives experts power.

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the pandemic seems to further shape how much people think about large government debt. Those who are ever shocked by the concept seem to be Okay with it now, when the money is put on it… good use and the to interest owed remains relatively low.

So, even if countries like the UK record record debt, some like South Africa wage freezes in the public sector should introduce that risk unrest, and the government debt-to-GDP ratio is expected to hit 140% in developed economies, many experts have a general recommendation: stay to borrow

Not so long ago, it was widely believed that a country’s public debt burden should remain quite shy the size of its economy. In the US, government debt amount to about 60% of GDP on the eve of the global financial crisis, just over a decade ago, and the founding treaty actually a ceiling for government debt of 60% of GDP. But like other things that were once taken for granted, at least the pandemic is temporary demolished that EU directive – as policy makers to juggle sustaining economies.

In some ways, the growing willingness to borrow more is the result of a trick improved since the financial crisis. Just like they did then, central banks have simply… printed the money needed to buy up huge amounts of government debt and inject liquidity into economies. Looking to expand your deficit to fund COVID-19 relief? Only “print the damn money”, as one economist put it.

Image: World Economic Forum

Long before COVID-19, many experts criticized the determined obsession with reducing government debt as β€œfoolish”, while noting that the debt raised to defeat the Nazis in World War II β€” presumably a justified expense during a crisis β€” had yet to be paid off.

Still risk of rising debt levels scaremongering about possible bankruptcy and demise. And the circular approach to get a central bank to pump money for government spending is leading to warnings about ensuing inflation. Germany after World War I, where hyperinflation got so bad that waiters had to call out new menu prices every half hour is a frequently mentioned example. Yet inflation fears seem mostly muted.

Governments have been to borrow from a wide range of investors, including pension funds, but central banks have been some of their most trusted lenders – the US Federal Reserve is to buy $80 billion in Treasury bills per month.

Of course, record levels of government debt are expected to be financial challenges in many parts of the world. For example, developing countries can not capable of to tap into the same resources as their wealthier peers – and they’ll probably hook up for it soon… billions of dollars in debt payments.

Image: The World Economic Forum

For more context, here are links to further read from: the World Economic Forum’s Strategic Intelligence platform:

  • South Korea recently unveiled a plan to legally limit government debt, criticized by conservatives. But according to this report, there are also concerns about not enough spending to fight the pandemic, and questions about how urgent such a cap is really needed. (the diplomat)
  • This economics professor believes the UK government is making a big mistake in letting its pandemic response be influenced too much by concerns about what a resulting deficit will mean for the future. (LSE)
  • According to this analysis, a global debt crisis is not imminent. While market observers have good reason to alarm about increasing leverage globally, it should level off around 2023 – although that depends on factors such as a widely available COVID-19 vaccine by mid-2021. (Project syndicate)
  • Earlier this year, when the European Central Bank committed to a €1.35 trillion asset purchase program to cushion the blow of COVID-19, it surfaced a deep-seated disagreement in the board of directors. . This analysis examines the political conflicts that can always break out at the ECB, and what drives them. (LSE)
  • The pandemic has raised concerns about debt unsustainability in many countries. But the issue of sovereign debt transparency has been a thorny one β€” this analysis proposes the creation of an open-access, real-time debt transparency platform powered by distributed ledger technology. (CEPS)
  • Low-income countries would send at least $40 billion to lending banks and bondholders this year, and plans to pause these interest payments β€” let alone cancel any of the principal β€” are now patchy, according to this report. (The new humanitarian)
  • Economists may not be bothered by heavy government borrowing when the US economy is at risk, but Republican lawmakers have become wary of the enormous costs of fighting the pandemic, according to this report. (Christian Science Monitor)

On the Strategic Intelligence platform, you will find feeds of expert analysis related to: COVID-19, Financial and Monetary Systems and hundreds of additional topics. You must register to view.

Image: World Economic Forum

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