- No real fix to the sharp rise in public debt loads, economists say

By News Team, Rush Hour Daily

Updated on August 26th, 2023

no-real-fix-to-the-sharp-rise-in-public-debt-loads,-economists-say

The conclusion of a research paper presented at the Kansas City Federal Reserve’s annual central banking symposium in Jackson Hole, Wyoming is that the steep increase in public debt loads over the past 15 years is likely irreversible. Governments borrowed large amounts of money to combat the Global Financial Crisis and the COVID-19 pandemic, leading to a significant rise in worldwide public debt. Debt-to-GDP ratios have also increased in advanced countries, including the United States, where government debt now exceeds the nation’s annual economic output. In the past, countries have successfully reduced debt-to-GDP ratios, but the authors of the paper argue that many economies will struggle to outgrow their debt burdens due to population aging and will require additional public financing for healthcare and pensions. Rising interest rates and political divisions make it difficult to achieve budget surpluses, while inflation does little to reduce debt ratios. Debt restructuring for developing countries has also become more challenging. The authors conclude that high public debts are here to stay, and governments will need to implement spending limits, consider tax hikes, and improve bank regulation to manage the situation. While this may not be a happy diagnosis, it is a realistic one.