John Morgan: “Harvard Economists to IMF: Global Government Debt Is the Worst in 200 Years” – Money News

Posted on :Jan 04, 2014

By: John Morgan

Money News

January 3, 2014

The Western world is so broke that it will require defaults, governments’  imposition of a “savings tax” on private wealth and other harsh measures to  recover from one of the most perilous economic times in modern history,  according to a research paper by Harvard economists Carmen  Reinhart and Kenneth Rogoff for the International Monetary Fund (IMF).

Not since the Great Depression and the post-World War II era have such  remedies been required of rich nations, the paper’s authors noted.

“The  magnitude of the overall debt problem facing advanced economies today is  difficult to overstate. . . . The current central government debt in advanced  economies is approaching a two-century high-water mark,” they  wrote.

The paper explained the  developing world is fooling themselves by maintaining they are different from  poorer nations and can resolve their debt overhangs with austerity, growth and  economic maneuvering.

Instead, the so-called “rich” nations are viewed  as prolonging the global financial crisis with their foot-dragging.

In  the 1930s, most advanced nations simply wrote off their debt, and World War I  loans from the United States to France, Britain and Italy were simply  forgiven.

The current debt solutions could include “directed lending to  government by captive domestic audiences (such as pension funds), explicit or  implicit caps on interest rates, regulation of cross-border capital movements  and generally a tighter connection between government and banks,” Reinhart and  Rogoff wrote, adding that this time of financial repression “often masks a  subtle type of debt restructuring.”

Government gross debt-to-GDP (gross  domestic product) ratios in 2014 are forecast to be 95.3 percent for the euro  area and 109.2 percent for the United States, according to the IMF, CNBC reported.

The ratio for all advanced economies is expected to be 109.5  percent, with the same amount for emerging economies at only 33.6 percent,  primarily because emerging nations managed to deleverage during the years  leading up to the recent global recession.

Now, according to Reinhart  and Rogoff, it is time for the Western world to take some of the same medicine  often prescribed for poorer emerging nations.

“In light of the historic  public and private debt levels…it is difficult to envision a resolution to the  current five-year-old crisis that does not involve a greater role for explicit  restructuring,” the pair concluded in their paper.

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