Thursday, February 19, 2009

Debt Crisis

Good morning! Depressed about the economic climate? Neil Reynolds in the Globe and Mail reports on two economists that see a future debt crisis.
For one thing, Prof. Reinhart and Prof. Rogoff say, people should expect an enormous increase in national debt. How enormous? Would you believe -on average, around the world - an 86-per-cent increase? In a sobering scrutiny of past financial meltdowns, published as The Aftermath of Financial Crises, the pair conclude that banking-based crises always result in "an explosion of [national] debt."


U.S. national debt is now (as of Feb. 3) $10.7-trillion (U.S.). Expand this debt by 86 per cent and you get a debt of $19.9-trillion; expand it by 100 per cent and you get a debt of $21.4-trillion, equivalent to 170 per cent of GDP. By contrast, U.S. debt in the Second World War didn't exceeded 120 per cent of GDP. Based on the findings of Prof. Reinhart and Prof. Rogoff, the U.S. will end this recession with far more new debt than the $3-trillion that some economists now presume.

Hat tip: Pat

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