Record debt in wealthy nations threatens global growth and fiscal flexibility

Record or near-record national debt in the United States, Britain, France, Italy and Japan is threatening to slow growth and destabilize the global economy, Patricia Cohen reports. High borrowing costs are already crowding out public spending on health care, infrastructure, housing and education, and can push up rates on business and consumer loans as well as inflation.

Kenneth Rogoff of Harvard warned that large overhanging debt gives governments less room to respond when things sour: "You want to be able to spend big and spend fast when you need to," he said. The International Monetary Fund says that in six of the wealthy Group of 7 nations the national debt equals or exceeds annual economic output.

The strain shows in specific figures and policy debates. The U.S. national debt is about $38 trillion, roughly 125 percent of GDP; Italian debt equals 138 percent of GDP; and Tokyo’s debt is more than twice Japan’s annual output. Demographics and slow growth have raised health and pension costs in Europe, Britain and Japan.

European and British studies have also reported large investment shortfalls — the EU study cited an extra $900 billion needed across the bloc, and a London think tank put Britain’s infrastructure bill at no less than 300 billion pounds. Markets are reacting to fiscal and political moves.

Key Topics

Business, Japan, Italy, International Monetary Fund, Sovereign Debt