debt

Japanese National Debt

Japanese National Debt

Readers Question: How is Japan able to run a national debt of nearly 240% of GDP? (from: List of National debt by Country)In 2017, Japanese public sector debt rose to one quadrillion yen ($10.28 trillion) representing 239% of GDP.   This compares to 2013, when government debt was 227% of GDP. This is significantly more than several European countries like Greece (150% of GDP, Italy 112% of GDP, UK 77% of GDP). In the most recent budget deficit,…

Solutions to national debt

Solutions to national debt

Readers Question: Please is there any solution to national/public debt? National (public sector) debt is the outstanding level of debt owed by the government to the private sector. It is the accumulation of annual budget deficits. Do we need a solution? Firstly, it is worth evaluating whether we need an actual ‘solution.’ National debt has been a feature of economies for many centuries. The UK national debt goes back at least to the Seventeenth Century. Source: Reinhart, Camen M. and Kenneth S. Rogoff,…

Effects of a budget surplus

Effects of a budget surplus

A budget surplus occurs when government tax receipts are greater than government spending. It means the government can either save money or pay off existing national debt. It is worth noting, that budget surpluses are quite rare in the past 120 years. Politicians have sometimes attempted to enshrine budget surplus into law but what are the economic effects of this?The argument is that with high levels of national debt – periods of economic growth should be taken as an opportunity to…

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Does Government Debt Matter?

Readers Question: Does Government debt matter? Do high fiscal deficits threaten economic stability? Summary Many worry that high levels of government debt could cause economic instability. In certain occasions, countries with high debt have seen investors lose confidence, leading to higher bond yields and putting pressure on the government to slash spending, for example, several countries in the Eurozone (2010-12). In rare cases, governments with high debt have responded by printing money – causing inflation to spiral out of control, for example, Germany in the 1920s. Another potential problem is when…

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How bad is government debt?

One of the most popular topics on this blog is government debt. UK National debt and list of countries sovereign debt. To many people the sums involved are so large, there seems something instinctively wrong, even dangerous, about allowing the government to borrow so much. As Mrs Thatcher said, she was brought up a grocer’s daughter and she learnt how to balance the books.  Why should the government be any different? Also, if a government has so much debt, is there not a cost to the future generation? There are…

UK post-war economic boom and reduction in debt

UK post-war economic boom and reduction in debt

Readers Question: What caused the massive decrease in the debt to GDP ratio for the UK following World War II?It is a good question to ask. In the past few years, many European policymakers have felt that rising debt levels needed panic levels of austerity/spending cuts. But, that didn’t happen in the UK in the post-war period. Summary UK national debt peaked in the late 1940s at over 230% of GDP. From the early 1950s to early 1990s, we see a consistent decrease…

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Is austerity necessary?

Since 2010, the UK economy has been dominated by spending cuts and the desire to run a budget surplus as soon as possible. In the political world, the government deficit is often portrayed as the source of many economic ills and eliminating the deficit one of the highest macro objectives. However the government deficit (see: Government debt under Labour) never caused the recession, but the deficit was largely a symptom of the global financial crisis. Reducing the deficit at a time of weak growth has arguably slowed down the…

Problems of external debt

Foreign or external debt represents the amount a country (both public and private sector) owe to other countries. Foreign debt can involve:Outstanding loans to foreign private banks (both principal and outstanding interest) Due payments to international organisations like the IMF Outstanding payments for a current account deficit, with country owing money for importsDebt includes bothShort-term liabilities – loans which need to be paid in near future (within one year) Long-term liabilities – long-term loans which are scheduled to be repaid over a longer term.When is external debt…