This document provides a summary and analysis of policies to address rising global debt levels. It discusses three policy options: debt restructuring, which allows renegotiation of debt terms; inflation, which reduces the real value of debts over time; and fiscal policies, though these are not described. For debt restructuring, the document outlines debates around its impacts and challenges in implementation. Inflation is analyzed as preferable to restructuring but also faces issues in achieving an appropriate rate and avoiding negative economic consequences. Overall the document performs an even-handed evaluation of the benefits and limitations of different debt management strategies.
In a speech following the September 11, 2001, terrorist attacks and in the midst of the accompanying U.S. recession, Federal Reserve Chairman Alan Greenspan made a declaration that turned the world of the investment bankers upside down. Greenspan declared that the FOMC (Federal Open Markets Committee) stood prepared to maintain a highly accommodative policy stance for as long as needed to promote satisfactory economic performance. Translated from central banker speak, what Greenspan meant is that he is willing to inflate the money supply and hence lower interest rates for as long as necessary to “revive” the economy and repair it from the shock it received on that fateful day. What this meant for investors in the U.S. Treasury bond market is that they were not going to make any money on U.S. treasury securities for a very long time. Smart investors, diverted from the bond market, scanned Wall Street for a similar low-risk, high-return investment that could take the place of U.S. Treasury securities, and they fell in love with residential mortgages. On September 18, 2008, after months of economic anxiety and several massive bailouts of distressed firms by the government, the stock market had its largest single-day drop since September 11, 2001. Officials and commentators declared an economic emergency and moved on two fronts. The Department of the Treasury and Federal Reserve Board ("Fed") dusted off a 1932 statute and invoked the Fed's authority to stabilize failing firms by lending them money, although some were allowed to fail.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
The Causes of the 2007-08 Financial Crisis: Investigative StudyPhil Goldney
A comprehensive study of the causes of the 2007-08 global Banking Crisis, incorporating primary research from industry professionals. The study amounts to approximately 6000 words. Please contact me for the extensive and comprehensive bibliography.
Presentation at Texas Christian University\'s AddRan Festival Of Undergraduate Scholarship and Creativity, April 2009 and winner of TCU\'s Economic Department Award to Best Presentation in Economics.
Overview about The financial Crisis in 2008. The presentation with 4 main points: reasons, development (also including responses), and consequences.
We hope that this is an easy source of information for you to understand this crisis.
After the storm- Global Financial Crisis 27 aug 2010Gaurav Sharma
Global Financial Order - Reasons for Crisis, Current Status, The BIG Shifts- Public Debt, Global De-leverage, Wealth Concetration & Creation.
Talk Delivered at Fore School Of Management, new Delhi
Major Market Crises of History: Reason and Effect YRS1204
There are many market crises that happened over the last 150 years, three of the major ones are discussed in the presentation which are:
1929 Wall Street Crash
2000 Dot-Com Bubble
2008 Global Financial Crisis
Incorporating Digital Tools into your [Departmental] Marketing Matt Cummings
Have you always wanted to to generate more interaction on your social media but did not know the basic steps in getting starting? This workshop will explore ways to enhance your visual digital marketing strategy and how to connect with socially engaged students.
In a speech following the September 11, 2001, terrorist attacks and in the midst of the accompanying U.S. recession, Federal Reserve Chairman Alan Greenspan made a declaration that turned the world of the investment bankers upside down. Greenspan declared that the FOMC (Federal Open Markets Committee) stood prepared to maintain a highly accommodative policy stance for as long as needed to promote satisfactory economic performance. Translated from central banker speak, what Greenspan meant is that he is willing to inflate the money supply and hence lower interest rates for as long as necessary to “revive” the economy and repair it from the shock it received on that fateful day. What this meant for investors in the U.S. Treasury bond market is that they were not going to make any money on U.S. treasury securities for a very long time. Smart investors, diverted from the bond market, scanned Wall Street for a similar low-risk, high-return investment that could take the place of U.S. Treasury securities, and they fell in love with residential mortgages. On September 18, 2008, after months of economic anxiety and several massive bailouts of distressed firms by the government, the stock market had its largest single-day drop since September 11, 2001. Officials and commentators declared an economic emergency and moved on two fronts. The Department of the Treasury and Federal Reserve Board ("Fed") dusted off a 1932 statute and invoked the Fed's authority to stabilize failing firms by lending them money, although some were allowed to fail.
Western governments are hopelessly addicted to deficit financing while refusing to address looming funding issues - with apologies to the embarrassingly foolish Angela Merkel, politicians can no more successfully “battle” the markets than you and I can successfully “battle” gravity. Petrocapita is an investment trust built around the premise that demand for energy will continue to move prices higher over the long-term. Petrocapita was created to allow investors to add professionally managed oil & gas assets directly to their portfolios.
The Causes of the 2007-08 Financial Crisis: Investigative StudyPhil Goldney
A comprehensive study of the causes of the 2007-08 global Banking Crisis, incorporating primary research from industry professionals. The study amounts to approximately 6000 words. Please contact me for the extensive and comprehensive bibliography.
Presentation at Texas Christian University\'s AddRan Festival Of Undergraduate Scholarship and Creativity, April 2009 and winner of TCU\'s Economic Department Award to Best Presentation in Economics.
Overview about The financial Crisis in 2008. The presentation with 4 main points: reasons, development (also including responses), and consequences.
We hope that this is an easy source of information for you to understand this crisis.
After the storm- Global Financial Crisis 27 aug 2010Gaurav Sharma
Global Financial Order - Reasons for Crisis, Current Status, The BIG Shifts- Public Debt, Global De-leverage, Wealth Concetration & Creation.
Talk Delivered at Fore School Of Management, new Delhi
Major Market Crises of History: Reason and Effect YRS1204
There are many market crises that happened over the last 150 years, three of the major ones are discussed in the presentation which are:
1929 Wall Street Crash
2000 Dot-Com Bubble
2008 Global Financial Crisis
Incorporating Digital Tools into your [Departmental] Marketing Matt Cummings
Have you always wanted to to generate more interaction on your social media but did not know the basic steps in getting starting? This workshop will explore ways to enhance your visual digital marketing strategy and how to connect with socially engaged students.
Der Vortrag auf der etailment WIEN 2016 zu Last Mile:
Um wettbewerbsfähig zu bleiben, ist es wichtig, Zustellmodelle anzubieten, die kostengünstig sind und vom Kunden auch gewollt werden. Daher wird derzeit viel probiert, von den Logistik-Marktführern, aber auch von jungen Start-Ups, die in bestimmten Segmenten reüssieren möchten. Ein Blick auf die aktuellen Entwicklungen und innovativen Konzepte verschiedener Logistiker.
PERFORMIX.Wien 2016 – Startschuss für Start-ups – so startet man durch – Alex...Werbeplanung.at Summit
Unternehmen müssen datengetrieben arbeiten um in einem kompetitiven Umfeld erfolgreich zu sein. Das gilt für Startups genauso wie für traditionelle Unternehmen.
Um Dinge systematisch schnell besser zu machen als andere braucht es ein sinnvolles und funktionierendes KPI Framework.
Es gibt allerdings Daten wie Sand am Meer und nur begrenzte kognitive Kapazität und Personal. Ein solches Framework muss also die Frage beantworten welche Daten aufgezeichnet und welche Daten zu welchem Zeitpunkt analysiert werden und im Fokus stehen. Lassen Sie uns ein solches Framework skizzieren und darüber sprechen, welche Skills es braucht um es in unternehmerischen Erfolg umzusetzen.
1. GLOBAL IMBALANCES1.1 Cheap But Flighty How Global Imbalanc.docxSONU61709
1. GLOBAL IMBALANCES
1.1 Cheap But Flighty: How Global Imbalances Create Financial Fragility
by Toni Ahnert and Enrico Perotti
Bank of Canada Working Paper 2015-33
https://www.bankofcanada.ca/wp-content/uploads/2015/08/wp2015-33.pdf
August 2015
How a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights. Domestic intermediaries compete for such cheap funding by carving out safe claims, which requires demandable debt. While foreign inflows allow countries to expand their domestic credit, risk-intolerant foreign investors withdraw even under minimal uncertainty. We show that more foreign funding causes larger and more frequent runs. Beyond some scale, even risk-tolerant domestic investors are induced to withdraw to avoid dilution. As excess liquidation causes social losses, a domestic planner may seek prudential measures on the scale of foreign inflows.
Topics to study:
· Investment / risk - relationship
· Global Imbalances
· Factors to attract foreign investment
· Safety-seeking foreign funding
1. An increasing scale of foreign funding may induce runs even by risk-tolerant investors since they seek to avoid dilution.
2. Result supports a mandate for introducing a macroprudential regulator to oversee the nature of foreign inflows because the socially preferred funding structure would involve less credit volume and more stability than the private choice.
3. Global imbalances shaped the credit boom and, ultimately, the financial crisis
4. The accumulation of wealth in countries with a weak protection of property rights creates a demand for absolute safety provided by intermediaries in developed countries.
5. The safety-seeking nature of foreign flows creates risk.
1.2 Global Imbalances and the Financial Crisis: Products of Common Causes
Maurice Obstfeld and Kenneth Rogoff
University of California, Berkeley, and Harvard University.
Federal Reserve Bank of San Francisco
https://scholar.harvard.edu/files/rogoff/files/global_imbalances_and_financial_crisis_0.pdf
November 2009
This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States’ ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble.
Topics to st ...
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
As the global financial crisis entered its most dramatic phase, in the second half of 2008, the International Monetary Fund (IMF), many governments and several distinguished scholars advocated expansionary fiscal olicy as the second most effective tool (after monetary stimulus) to fight deep recession and deflation. Now, more than a year later, the previous excitement surrounding the supposed power of fiscal stimulus largely disappeared and instead has been replaced by ising concerns over the sustainability of public finances in many countries. Unfortunately, the previous enthusiasts of the active counter‐cyclical fiscal policy have not always realized the causality between the two.
Authored by: Marek Dąbrowski
Published in 2009
Global Powers of Consumer Products 2013Melih ÖZCANLI
Global Powers of Consumer Products 2013
Engaging the connected customer
by Deloitte, 2013
The opportunity for consumer products companies to manage their brands online, engage with consumers at an individual level, and drive sales through digital channels is significant. The question is how to do it well. Take a look at this year's report to see which consumer goods companies are on the Top 250 list. Then keep reading to see what approaches the industry is likely to take to engage this new, digitally empowered consumer.
Find out which companies are where on this year's Top 250 list by downloading the complete report.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Growth-Debt Nexus: An Examination of Public Debt Levelsand Debt Crisis in Zim...iosrjce
Government debt is an indirect debt of the taxpayers, and can be classified as internal or external.
Debt crisis is the general term for a proliferation of massive public debt relative to tax revenues.Public debt
enables governments to invest in critical areas of the economy where the capacity of tax revenue to undertake
these projects may be limited or in situations where printing additional money will disrupt the stability of the
economy. Government borrows in order defer difficult but necessary reforms such as the imposition of taxes
which might be necessary to generate revenue for development. Countries with high public debt tend to grow
slowly. The study examines the origin of debt crisis in Zimbabwe, debt nature, causes, consequences and
possible ways of reducing the debt. The study uses 1980-2013 data to run an OLS model on economic growth
using STATA Econometric Software, in an effort to explore the effect of external debt. The regression results
shows that public debt has a negative effect on economic growth in Zimbabwe, which has varying theories
prevailing. The study concludes by encouraging the government not to borrow unnecessarily, and to use
borrowed funds for investment projects, rather than on consumption expenditure
Growth-Debt Nexus: An Examination of Public Debt Levelsand Debt Crisis in Zim...
Policy paper final
1. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
Global debt
Name: Adham Abdel Moneim
Instructor: Mr. Brian Glabb
Course: ECON 3820
Date: 26th
November 2015
1
2. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
Executive Summary:
The motivation behind this policy discussion is to illuminate the radical increment in cutting edge
economies’ public debt, which may hamper growth and development. Efforts to curb deflation through
lowering the interest rates, has not borne any fruits in the recent past. By driving down interest rates and
empowering all the more lending, debts of different types keep heaping up with no reasonable method for
paying off those obligations. This raises the concern of debt sustainability in advanced economies. The
piling publics are bound to be passed on to the future generations. The future generations will, therefore,
inherit debt burdens that they had nothing to do with. In fact, instead of reducing public debts, advanced
economies are characterized by higher borrowing levels compared to their GDPs each year as compared
to the previous years. Economists have over the years established key propositions upon which the
conceptions of public debt should either be completely discarded or radically revised (Buchanan 17). The
decision to radically revise or completely discard is based on whether the propositions are either true or
false.
Inquisitive personalities dived into a captivating yet long McKinsey’s investigation of public debt
and deleveraging after the great financial crisis (Dobbs, Lund and Woetzel 23). It is projected that the
debt will continue to rise given the prevailing economic fundamentals. The current economic policies are
not effective in ensuring that global economies pay these debts without recurring new debts. The rapid
rise in public debts can be highly attributed to the catastrophic recession whereby global economies took
too long to recover. Public debt reduction compels advanced economies to consider new approaches and
restructuring programs such as asset sales, timely taxation and expansion of revenue collection and most
importantly more efficient public debt restructuring plans.
Background:
In 2008, the global economy was hit by the most catastrophic financial crisis since the great
depression. The crisis began mushrooming in 2006 in the United States where the rate of mortgage
defaults started skyrocketing. Later that year, there was a downfall of housing prices. The most affected
victims of the crisis in 2008 in the US were insurance companies, investment bankers, mortgage lending
enterprises and commercial banks as well. The carnage spread overseas and not just in the financial sector
but other industries as well. The crisis persisted for close to two years a period within which recovery
seemed very unlikely. When the crisis is subdued, advanced economies cut down capital injections and
interest rates a move that was welcomed by investors.
The crisis originated from the US, but its implications spilled over globally. The United
Kingdom, for instance, experienced a 7.4% rate of decline; Germany recorded 14.4%, Japan at 15.3%,
8% in the EU, and 21.3% in Mexico. 1. By 2009, the Arab world experienced a $3 trillion loss globally
all due to the crisis. The US lost close to two million jobs giving rise to the unemployment rate that rose
up to 7.2% in December from 4.4% in March the previous year. The only major difference between this
crisis and the great depression is that whereas the great depression in the 1930s started in the
manufacturing industry, the crisis in 2008 started in the financial sector. By the end of 2009, Arab
countries had lost approximately three trillion dollars, which was attributed to the fall in foreign
investment in the Middle East as the demand for oil declined.
In 2012, IMF global stability report indicated a decline in global growth but there were no indications of a
complete overhaul.
2
3. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
Discussion:
1. Debt restructuring:
Debt restructuring processes that allow renegotiation and reduction of debt payment, burden
especially in times of financial turmoil. It involves the review of the conventional terms and agreements
of a debt. In cases of public or private organizations, the new agreement is commonly referred to as
trouble debt restructuring. In an unprecedented scenario where the debtor is in a financial turmoil, the
creditor may decide to change the agreements as opposed to compelling the borrower into liquidation.
The agreement changes include but are not limited to changes in debt interest payments or the principal
amount. In 2007, what started off as mere financial problems progressed into a great depression after
which an element of debt restructuring dubbed debt mediation was introduced.
Global debts restructuring is only applicable where the prevailing policies and market-based
approaches are lacking (Brooks and Lombardi 28). Some economists, however, are of the opinion that the
current policies are not lacking and that the problem lies in their execution. If that were the case, debt
restructuring would not be as fruitful. Other opponents also argue that to maintain a smooth and efficient
global debt market, the prevailing agreements such as sovereign bond terms or contracts should be left
unchanged. A process should be duly established ensuring that the changes are in line with all parties
involved.
Additionally, another opponent school of thought on debt restructuring disputes that changing
borrowing terms ease the repayment burden that may ultimately attract imprudent global borrowing. Debt
restructuring should be costly divergent from which they are bound to happen more frequently.
Restructuring may limit the need for somberness that comes with global debt. It is also not easy to reach a
consensus with all creditors not to mention the whole process is very costly. The primary goal of debt
restructuring as a policy is to reduce the public debt and enhance its sustainability, but this may not
always be the case as investors tend to shy away.
On the other hand, despite the flexibility and ease of debt burden advanced economies will be
obliged to bear the burden to avoid high borrowing costs in future. These economies also strive to keep
their position in the international markets. In his article “The Economics and Law of Sovereign Debt and
Default”, Ugo Panizza asserts that the alarm of prohibition from future global is adequate to support
global debt (Panizza, Sturzenegger and Zettelmeyer 672). This argument, however, is not sufficient, but
its contribution cannot be overlooked.
Extensive studies and research plausibly conclude that debt restricting does not favor the
prevailing finance ministers and politicians (Panizza, Sturzenegger and Zettelmeyer 685). Effective or
not, debt restructuring is bound to stir political, economic and social effects be they positive or negative.
Economic implications of restructuring include reduction of creditor moral hazard and deadweight losses.
Consequently, the key political implication is sustainability, for instance, do the changes enhance the
validity of crisis tenacity policies?
2. Inflation:
Inflation is the rate at which the general prices rise and the rate at which the value resultantly
falls. Inflation as a management strategy for public debt involves the reduction of the real value of debt.
The world war saw the United States accrue a debt of more than its GDP. The economy was, however,
able to reduce the debt by half over a period of ten years thanks to a combination of growth and inflation
3
4. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
approximately at 4%. Advanced economies are obliged to slow down the inflation process given the
alarming public debt to GDP ratios in the economies.
Inflation reduces the value that creditors received in real terms and relatively less than the initial
agreement but compared to debt restructuring; making it a more preferable policy. In this case, a creditor
is not forced into new terms as stipulated in restructuring thus making this policy less disorganized. The
primary goal of this policy is to aim at reasonable inflation that significantly ease the debt burden
(McCauley, McGuire and Sushko 212).
This policy also faces a few challenges one being its viability. Adequate levels of inflation that
would offset the global debt burden are likely to impact the economy negatively. Such economic
implications are very costly and could cripple the economy as well. Despite the good intentions, inflation
might end increasing the fiscal revenue in an economy and subsequently resulting in negative political
issues, especially in democratic countries. It would, therefore, be challenging to reach a moderate
inflation level and avoid the negative economic and political implications at the same time.
Low inflation rates have little or no effect in mitigating debt burden. The lack of clarity between
inflation and debt burden limits its effectiveness. The ambiguity in the relationship between the two
aspects may also pose as a hurdle. Opponents of this policy argue that inflation could result into a deeper
problem instead of solving the current ailment that is global debt burden.
Comparison between the current economic situation and the past economic situations show traces
of similarities between debt burden and inflation and substantial evidence of instances when the policy
was successful (Aizenman and Marion 528). It is clear that the policy is only applicable when domestic
creditors hold the majority of debt owed.
Although there is the question of fiscal sustainability, a combination of growth and inflation
policies would be immensely valuable compared to debt restructuring. Inflation must, however, be
introduced after inception and come as a surprise to the creditors otherwise the risk of inflation would be
factored in the valuation of borrowing cost.
3. Fiscal consolidation:
Substantial empirical analysis over the recent past shows that the decrease in debt burden is
closely influenced by growth and effective fiscal consolidation measures. Fiscal consolidation
fundamentally involves an increase in revenue collected in taxes or decrease in government spending.
Decrease in government spending in advanced economies is more likely to lower the rate of growth in the
short term as a result of a resultant decline in aggregate demand. It also entails control of the public wage
bill, efficiency in the public sector and sealing of all leakages. Complementing the policy with a
collective debt reductions approach such as augmentation of a tax base and tax policies is the key
ingredient. Mitigation of the public debt burden by the use of fiscal consolidation keeps up
trustworthiness of the governing body, which might frequently be politically troublesome in the long run.
Continued fiscal consolidation in advanced economies leads up to the economic implications of
the policy. If the apparent decrease in economic activities happens to be higher that the debt, the debt to
GDP ratio is more likely to rise. Compared to inflation, fiscal consolidation is, therefore, more efficient,
unlike inflation that lacks in fiscal sustainability.
Fiscal multipliers of the current fiscal policy are significantly above the regular level. The regular
levels were however recorded before the financial crisis. The negative economic implication of fiscal
consolidation is as a result of the loopholes and defects of the prevailing policies and current environment
4
5. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
such as lack of effective monetary policies, low external demand, to name but a few. The fact that fiscal
consolidation can increase the debt ratio in the short term unlike the inflation policy is good enough an
incentive to boost the confidence of investors. The challenge, however, lays in the political aspects
whereby it may be difficult to implement both the short run and in the long run.
4. Fiscal Repression:
Fiscal repression is measure utilized by governments to decrease debt burden and mostly
incorporate the conscious endeavor to hold down interest rates beneath inflation, signifying an expense on
savers and an exchange of advantages from lenders to borrowers. By so doing, the government influence
buying or holding of government debt instruments by domestic investors at relatively low-interest rates.
Consequently, investors receive returns at rates lower than the initial market rates (Renhart 12).
This policy is however faced with the challenge of effective utilization and implementation and
defining the relationship between domestic saving and investment (Husain and Diwan 271). Effective
investment is dependent on the respective interest rates elasticities. It would not be plausible to draw a
conclusion that if the decrease in investment is always as a result of inefficient allocation. If it so happens
that financial repression maintains domestic saving as at a level below the optimum level, there would
need to worry by the policy makers. Increased borrowing may result in high economic costs thus
hampering current and future growth as well. Reduction in domestic saving as a result of the economic
offset ultimately causes capital flight.
Many countries have in the past successfully used various repressive policies in their domestic
financial institutions a fact that signals the policy’s superiority and effectiveness in comparison with other
policies. After the World War II, advanced economies were hit by huge public debt burdens (Riet 28).
Truncation of the domestic financial system by these economies proved to be immensely valuable.
5. Growth:
The heterogeneity between public debt and growth clearly manifested itself after the financial
crisis that hit advanced economies after the recession in 2007. Growth policy involves lowering the size
of the public debt to about the size of the specific economy. These economies have been striving to fuel
economic changes through subsidies; tax relieves among other fiscal strategies, but it may prove to be
very difficult without an expansionary fiscal policy that also makes the growth policy highly uncertain in
the long run.
Growth policy may be uncertain in the long run due to the traditional crowding out effects some
of which are found in the fiscal repression policy, public expenditure as well as social welfare. It was also
divergent from the fiscal consolidation policy illustrated above. Political implications are arising from this
policy, include the ability of the governing bodies to formulate fiscal policies, such as regulatory control
and also the rule of law. Political stability, therefore, stems from this policy.
Recommendation:
The backdrop above clearly illustrates that there is not a single option, activity, or policy that will
ease the debt burden in advanced economies. As policy makers, we are therefore tasked with formulating
sustainable strategies that will genuinely decrease public debt and reduce the burden imposed on future
generations. Economic growth should also not be accompanied by an expansion of public debts. No
single policy is sufficient by itself; ideal situations therefore require a perfect mix of policies, or aspects
of these policies as was in the case of growth and inflation in the United States after World War II.
5
6. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
First, the creation of an integrated program such as the European Union would increase
accountability. Greece was, for instance, accountable to the union in light of the recent economic crisis in
the country. Such programs in advanced economies will not only promote accountability but also boost
healthy competition and collective economic growth. Additionally, negative implications of policies such
fiscal instability in the long would be greatly reduced. G20 is an international platform for the top 20
economies in the world. It is a platform that brings together leaders from these countries to discuss global
policies key among them being global debt and transparency.
Second, it is also crucial to create standardized worldwide rules for reporting the full debt that can
be regulated by the IMF, which will decrease the occurrence of Defaults. As a result, proper debt levels
will be provided. Thus, the sufficient policies needed to promote economic growth and limit the
expansion of debt will be enacted. All countries are in debt for similar but different reasons; therefore
each country will need to pass different policies about each other, which can be effective through
transparency.
Fiscal consolidation could be done selectively depending on whether funded programs are
achieving desired results or not. Governments should stop the funded programs if not effective in making
money, or achieving desired results. This would put a cap on debt before it gets out of hand, and gives
priority to investments that promote economic growth. For this to be done there must be a regulatory
service to check consistently on borrowers, to ensure that they are achieving promised/desired results.
Implementation:
To start off, Fiscal repression will be very effective to help promote economic growth without
recurring new debt, or having to crowd out. The process to implement the policy should therefore
commence immediately. As explained above, the process is not immediate but progressive as it
fundamentally involves the use of government policy to force domestic investors to buy or hold
government bonds at low-interest rates. This would then increase domestic investment, which promotes
economic growth. Fiscal repression would be very effective if implemented with qualitative easing
strategies to keep rates low on longer bonds. This would provide an incentive for domestic investors to
buy bonds with a longer time to maturity. A combination of these two would work efficiently in a time of
debt. Typically low real interest rates would normally reduce savings, move consumption from future
years into the present, and generate stronger economic growth. The backdrop explains why fiscal
repression policy is the most effective of the other alternatives. After Fiscal repression, the
recommendations stated above should be implemented immediately in the order presented.
Analysis:
Economic growth is at the heart of public debt elimination. An increase in public debt results in
higher interests that lower the rate of investment that ultimately leads to low or stagnating economic
growth. Government borrowing, on the other hand, may crowd out private investment, which leads to a
further lowering of economic growth forecasts. As a result, the Canadian government would not be able
to control costs anymore.
In addition to considering the level of public debt, it is also important to factor in the type of
debts in determining debt sustainability in the future. Perfect examples are the current structural deficits,
where even with full employment, government revenue will not cover government expenses. This case
exists in most of the advanced economies.
6
7. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
The government extended fiscal support to troubled banks to stabilize the financial system, and
enacted many large packages to boost output, demand, and employment. This is resulting in lower tax
receipts and increased government spending on programs such as employment insurance. All of these
factors combined contributed to the vast increase in government debt among advanced industrialized
countries.
1. Cost-Benefit Analysis:
With either option selection, there should be a cost-benefits analysis by the government to
determine whether the benefits of option outweigh costs for implementing the option. For each option, the
total cost should be divided by its effectiveness, to complete a cost-effectiveness analysis. On the other
hand, the cost benefits analysis includes an extra step by looking at the total benefits minus the total cost
to show the net benefits of each option. Finally comparing all options to find the optimal option.
While governments take on debt, their ability to pay their existing debt becomes harder and
increases the risk for the investor. As a result, investors will increase interest rates on borrowing to
compensate for risk. Having a higher interest rate means a higher cost of borrowing for future. On the
other hand, governments that have significant borrowing crowds out investment, and decreases saving.
This reduces private investment spending as a result of a supply of funds increase, with no change in
demand for loanable funds, hence increasing interest rates.
There are many positive benefits to lower public debt for an economy that allow governments to
borrow at lower interest rates, which means spending less on a budget of interest payments that allows for
future growth and stability. If we continue with this consistent increase in debt levels, there will be
negative impacts on investment and economic growth in future.
2. Risk Analysis:
An increase in risk should be accompanied by a higher premium to compensate for that risk.
Advanced economies are burdened with heavy public debts that hinder the governments’ ability to fund
future programs and services while debt expenses increase. With high debt burden, governments may not
be able to raise necessary funds to respond to a crisis since the increased debt levels hinder their
flexibility. Borrowing today also shifts the burden of paying for current spending to future generations.
Changing investor’s perception about countries economic stability and ability to repay loan also increases
risk thus increases interest rates, and limits a nation’s access to credit markets.
Conclusion:
Public debt, an underlying cause of most financial problems in advanced economies continues to
be a menace and hampers economic growth. It has become almost impossible to repay the debts without
incurring more debts a situation which if not effectively controlled will cripple the future generation.
Implementation of the policies discussed above will mitigate the menace and ensure a debt free future.
7
8. ECON3820 Adham Abdel Moneim
Policy paper Student #: 100865929
Works Cited:
Aizenman, Joshua and Nancy Marion. "Using Inflation to Erode the US Public Debt." National Bureau of
Economic Research (2009): 524-541. Print.
Brooks, Skylar and Domenico Lombardi. "Sovereign Debt Restructuring." CIGI Papers (2015): 28. Print.
<rules.org/storage/documents/sovereign_debt_restructuring_background_paper_draft2014.pd
f>.
Buchanan, James M. "Public Principles of Public Debt: A Defense and Restatement." Library of
Economics and Liberty (1999): 1-21. Web. <http://garrido.pe/lecturasydocumentos/BUCHANAN
%20(1958)%20Public%20Principles%20of%20Public%20Debt,%20A%20Defense%20and
%20Restatement.pdf>.
Dobbs, Richard, et al. Debt and (not much) Deleveraging. Research. New York: McKinsey & Company,
2015. Print. <http://www.mckinsey.com/~/media/McKinsey/dotcom/Insights/Economic
%20Studies/Debt%20and%20not%20much%20deleveraging/MGI%20Debt%20and%20not
%20much%20deleveragingIn%20briefFebruary%202015.ashx>.
Husain, Ishrat and Ishac Diwan. Dealing with the Debt Crisis. Washington: World Bank, 1989. Print.
McCauley, Robert N, Patrick McGuire and Vladyslav Sushko. "Global Dollar Credit: Links to US Monetary
Policy and Leverage." Bank for International Settlements (2015): 187-229. Print.
Panizza, Ugo, Federico Sturzenegger and Jeromin Zettelmeyer. "The Economics and Law of Sovereign
Debt and Default." Journal of Economic Literature (2009): 651-698. Print.
<http://www.jstor.org/stable/27739982>.
Renhart, Carmen M. "The return of financial repression." Financial Stability Review (2012): 1-31. Print.
<https://www.banque-
france.fr/fileadmin/user_upload/banque_de_france/publications/Revue_de_la_stabilite_financi
ere/2012/rsf-avril-2012/FSR16-20-04.pdf>.
Riet, Ad van. "Financial Repression to Ease Fiscal Stress." Journal of Common Market Studies (2013): 37.
Print. <http://speri.dept.shef.ac.uk/wp-content/uploads/2013/06/2013-07-04-Financial-
repression-to-ease-fiscal-stress-in-the-eurozone-SPERI-conference-Sheffield.pdf>.
8