With Rising Debt, the U.S. Federal Government Is in Bad Company
Misery loves company, as they say. But does financial irresponsibility also enjoy spending a little quality time with friends? If so, it’s quite a party. While the U.S. government is famously running up debt to stratospheric levels, governments around the world have been spending beyond their means and borrowing to make ends meet. The likely result: financial markets put at risk by over-extended governments and slow economic growth for pretty much everybody.
Soaring Government Debt Everywhere
“Public debt as a fraction of gross domestic product has increased significantly in recent decades, across advanced as well as emerging and middle-income economies,” write Tobias Adrian, Vitor Gaspar, Pierre-Olivier Gourinchas for the International Monetary Fund (IMF). “It is expected to reach 120 percent and 80 percent of output respectively by 2028.”
Public debt—money borrowed by governments—has steadily risen, they add, because years of very low interest rates “reduced the pressure for fiscal consolidation and allowed public deficits and public debt to drift upwards.” Then, COVID-19 disrupted the global economy and governments responded by funding “large emergency support packages” on credit.
Now, with interest rates rising, the cost of servicing debt is going up, too. But governments continue to borrow as if nothing has changed. Of course, riskier governments have to pay higher interest rates.
“On average, African countries pay four times more for borrowing than the United States and eight times more than the wealthiest European economies,” United Nations Secretary-General António Guterres cautioned last summer with the release of A World of Debt: A Growing Burden to Global Prosperity. “A total of 52 countries – almost 40 percent of the developing world – are in serious debt trouble.”
As of 2022, that report revealed, global public debt stood at $92 trillion and rising. Interest payments displaced other expenditures in a growing number of nations, especially developing countries. High public debt crowds out financial room for everything else, including the ability of private parties to borrow for starting or expanding businesses that create jobs and build wealth.
Public Debt Crowds Out Private Investment
“Households who buy government debt reduce their savings in productive private investments,” Kent Smetters and Marcos Dinerstein wrote in 2021 for the Penn Wharton Budget Model. “As the spending is unproductive, the economy is
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