Global Debt

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low interest rates.

• Alternative options:

Congress could urge the Administration to coordinate fiscal policies multilaterally to avoid simultaneous austerity measures that undermine the economic recovery.

Assessment of the Proposal

Strengths

In this paper, the author discussed the sovereign debt from the financial crisis in 2008 to current situation, and introduced us with different situations in different countries with comparison. The paper also introduced us with the definition and concepts of government borrows, the differences between sovereign debt and private debt, the reason governments repay and default debt, and the measurement of sovereign debt, as well as, the trends in sovereign debt (pre- and post- crisis), variation and longer-term pressures among advanced economies.

The most interesting parts are the discussions of the challenges posed by high levels of debt, how governments can address them. It follows a part explained in detail about the five optional policies and current strategies.

At the end of the paper, the author used the U.S. as an example further discussed the topic.

This whole paper is reader-friendly, people without strong economic background can understand very well, and provide us with a big picture of current global debt issue.

The paper also stresses the fiscal austerity, which I think, for example, cutting budget deficits will give investors greater confidence about the long-term performance of the economy, lower debt levels will encourage the private sector to invest. As far as I know, Canada in 1993-96, cutted fiscal deficit but maintained strong growth is also a good example to support this policy.

Weaknesses

The weakness is probably because the author put a lot effort in explaining the basic background and concepts, he got less space to discuss more about the situation and potential risk and opportunities that advanced economy faced.

We can probably also think about during the period of recession or liquidity trap, there would be a rise in private sector saving and therefore strong demand for government bonds. Despite rise in the UK and the US government deficits, bond yields have continued to fall – suggesting that there is no immediate need to cut spending in a recession. Austerity should be applied when there is strong economic growth.

Personal Recommendations

From my perspective, we should keep an eye on the ratio of the public debt to GDP, and should keep it stable over a relatively long period. A growing debt ratio means a fact that the public sector is using resources in a way that does not contribute to the overall growth of the economy (i.e. unproductive spending).

Based on the idea that the public debt are different from private debt, I would say, probably the government can borrow from private sectors.

Overall, I think even though there are a variety of methods to be employed at various times, there is no magic formula that works equally well for every nation. As spending cuts and tax raises have demonstrated success, default has worked for some nations as well (at least if they think the good result is debt reduction rather than good relations with the global banking community).