From Project Syndicate:
The IMF's new Global Debt Database is an
impressive piece of work. And the numbers suggest that the so-called
debt intensity of growth has increased: we seem to need higher levels of
debt to support a given rate of economic than we did before.
LONDON – At the end of May, the International Monetary Fund launched its new Global Debt Database.
For the first time, IMF statisticians have compiled a comprehensive set
of calculations of both public and private debt, country by country,
constructing a time series stretching back to the end of World War II.
It is an impressive piece of work.
The headline figure
is striking. Global debt has hit a new high of 225% of world GDP,
exceeding the previous record of 213% in 2009. So, as the IMF points
out, there has been no deleveraging at all at the global level since the
2007-2008 financial crisis. In some countries, the composition of debt
changed, as public debt replaced private debt in the post-crisis
recession, but that shift has now mostly stopped.
Are these large
figures alarming? In aggregate terms, perhaps not. At a time when
economic growth is robust almost everywhere, financial markets are
relaxed about debt sustainability. Long-term interest rates remain
remarkably low. But the numbers do tend to support the hypothesis that
the so-called debt intensity of growth has increased: we seem to need
higher levels of debt to support a given rate of economic growth than we
did before.
Perhaps that is
partly because the growth in income and wealth inequality in developed
countries has distributed spending power to those with a propensity to
spend less than their income. That trend has leveled off recently, but
the implications are still with us. It also seems that productivity
growth has slowed, so a given quantum of investment generates less
output than it used to do.
The IMF’s
recommendation to governments is that they should fix the roof while the
sun is shining: accumulate a fiscal surplus, or at least reduce
deficits, in good times so that they are better prepared for the next
downturn, which will surely come before too long. The current upturn is
now quite mature. That puts the IMF on a collision course with the
tax-cutting United States administration and now with Italy’s new
government. If the Italians’ grandiose plans for a minimum income and
more public investment are implemented, they might soon find themselves
in difficult discussions with the Fund. The team that has been in Athens
for the past few years might soon be booked on a flight to Rome.
But what are the
implications if the growth in debt is principally in the private sector?
That is a question for the financial stability authorities in each
country....MORE
