As Global Debt Worries Mount, Is Another Crisis Brewing?
by Abdul Aziz Mondal Finance 17 October 2023
High-interest rates, record crisis, the price of climate change, health and pension expenses as populations age, and the factious policies are raising fears of a financial market crisis within the bigger and developed economies.
A surge in the borrowing costs of the government that the investors are demanding is increasing compensation to hold the long-term bonds and the policymakers pushing cautions on public finances.
More than 80% of the $10 trillion that rose in global debt within the first half of the record $307 trillion came through the developed economies, as per the Institute of International Finance.
In the United States, where a brinkmanship around the debt limit brought it even closer to a default, Britain and Italy are of the maximum concern, as was told by big investors, 20 prominent economists, and former policymakers to Reuters.
They are not expecting a developed economy to struggle to pay this debt but say governments should deliver the fiscal plans, increase taxes, and boost the growth to be able to manage the finances. Increased geopolitical tensions also add up to this cost.
“A fragile environment with higher rates and shrinking central bank support raises the risk of a policy misstep sparking a market rout,” as per Britain’s 2022 “mini budget” crisis.
A former chief economist at the European Central Bank, Peter Praet, said, “that while debt still appears sustainable, the outlook is worrying given longer-term spending needs.”
“You can take many, many countries today, and you will see that we are not far away from a public finances crisis,” he goes on to add during the ECB during the 2011 debt crisis.
“If you have an accident, or a combination of events, then you go into an adverse non-linear dynamic sort of process. That is something which is a real possibility.”
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