The increasingly large amount of global debt being taken out by countries around the world is creating a potentially painful road ahead for their populations as spending swells without enough tax intakes to pay for it.
last week that the United States’ chronic deficit must be “urgently addressed” through realigning spending priorities and making adjustments to the way people are taxed.Borrowing taken out today is going to be paid back by future generations that will feel the effects of having to service higher debt costs through higher rates, slowed income growth and fewer opportunities.
As a government issues more bonds, lenders will demand higher interest rates to keep the return on them competitive with the return on other investment opportunities. Higher bond rates will have effects on other parts of the economy, increasing interest rates on mortgages, car loans, credit cards and other types of loans.
In moments of catastrophe like the Great Recession after the 2008 financial crisis or the coronavirus pandemic, governments with disproportionately high debt burdens might be unable to respond as forcefully, which can lead to slower economic growth for longer.Economists have increasingly been warning about the United States’ need to address its growing debt burden that has exploded since the onset of the pandemic.
“Now is a good time, the U.S. economy is very strong and it is in good times where you can do more to prepare yourself for risks in the future,” said Kristalina Georgieva, the IMF’s managing director.Exactly when the debt becomes unsustainable is a bit of an unknown for economists to project and the onset of a fiscal crisis can come on rapidly.