Will world governments cut the real size of their debt through inflation?
*The Economist, by Brett Ryder, June 11, 2009:
"THE worst global economic storm since the 1930s may be beginning to
clear, but another cloud already looms on the financial horizon:
massive public debt. Across the rich world governments are borrowing
vast amounts as the recession reduces tax revenue and spending
mounts—on bail-outs, unemployment benefits and stimulus plans. New
figures from economists at the IMF suggest that the public debt of the
ten leading rich countries will rise from 78% of GDP in 2007 to 114% by
2014. These governments will then owe around $50,000 for every one of
their citizens.
Not since the second world war have so many governments borrowed so
much so quickly or, collectively, been so heavily in hock. And today’s
debt surge, unlike the wartime one, will not be temporary. Even after
the recession ends few rich countries will be running budgets tight
enough to stop their debt from rising further. Worse, today’s borrowing
binge is taking place just before a slow-motion budget-bust caused by
the pension and health-care costs of a greying population. By 2050 a
third of the rich world’s population will be over 60. The demographic
bill is likely to be ten times bigger than the fiscal cost of the
financial crisis.
Will they default, inflate or manage their way out?
This alarming trajectory puts policymakers in an increasingly tricky
bind. In the short term government borrowing is an essential antidote
to the slump. Without bank bail-outs the financial crash would have
been even more of a catastrophe. Without stimulus the global recession
would be deeper and longer—and it is a prolonged downturn that does the
greatest damage to public finances. But in the long run today’s fiscal
laxity is unsustainable. Governments’ thirst for funds will eventually
crowd out private investment and reduce economic growth. More alarming,
the scale of the coming indebtedness might ultimately induce
governments to default or to cut the real cost of their debt through
high inflation."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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