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Global Debt:
A Growing Menace
Sean Holiday
Mr. Holiday
AP Macroeconomics
1 June 2015
“Rising
global debt
is increasing
the risk of
another
financial
crisis”
Los Angeles
Times
Don Lee
29 July 2015
“More debt in the form of
government and private spending
is needed to stimulate today's
sluggish economies. Yet the higher
the debt, the greater the danger
that a pullback by creditors will
trigger another financial crisis like
the one in 2008.”
Source: Roscoe, Mike. “What does $200 trillion off debt really mean for the global economy?”
Positive Money.3 Feb. 2015. Web. 12 May 2016.
Keynesian Approach
“More debt in the form
of government and
private spending is
needed to stimulate
today's sluggish
economies….Europe
has largely slashed
spending to get a
control on government
budgets, but the result
so far has been
minimal growth and
high unemployment….”
The Loanable Funds Market
“The result is that by
the middle of last
year, total global
debt — government,
corporate and
household — reached
$199 trillion, an
increase of $57
trillion from the end
of 2007.”
The Money Market
“In recent years
governments have
financed spending by
selling and buying
trillions of dollars of
bonds. That's helped to
hold down interest rates,
fueling more
borrowing…Waves of
sovereign default have
started with movements
in interest rates.”
Key
Points
• Government borrowing in the loanable
funds market has resulted in rising real
interest rates
• European governments have been able to
offset this by issuing and buying bonds in
the open market, leading to falling nominal
interest rates (in the money market).
• That encourages more borrowing, and
interest rate volatility, raising the risk of
default.
• This has combined to result in a situation
where real economic growth isn’t
occurring.
• This trend could be reversed by focusing
spending on engines of economic growth,
like education, health care, and capital
formation.