IMF: Global debt is too high - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that the IMF have just released their latest Fiscal Monitor, which argues global debt is too high: their estimate is USD152 trillion, or 225% of world GDP, and rising.

Key Quotes

“Importantly, the report fully recognises private debt is a threat to growth, which the IMF was not bothered about pre-2008, of course, and which former Fed Chair Bernanke pooh-poohed as a threat in techno-babble fashion in his thesis on the Great Depression. Moreover, the IMF is backing a shift to fiscal policy despite our high level of debt as well as government-sponsored private-sector debt-restructuring, such as lengthening maturities, state guarantees, or direct lending to companies that are viable but unable to access financial markets. Where have we seen that policy package before? Could it be in a giant Asian economy that starts with the letter ‘C’? (“A change has got to come. And we are going to deliver it”?)

But we can rest assured some things don’t change: the IMF still argues that during good times, governments should run fiscal surpluses. That logically implies the private sector has to run an off-setting deficit, and so build up debt levels again; either that or the country will tighten its belt into recession and run a surplus with the rest of the world, building up another set of imbalances. So the IMF can see part of the global problem, just not what’s really causing it, or how to deal with it.”