01/18/10 Stockholm, Sweden – Government debt continues to be one of the most written about topics of 2010… and for good reason. The most developed and wealthy economies can’t seem to refrain from spawning the extraordinary levels of debt that were historically seen only in emerging markets (which for the most part, seem to have improved their balance sheets).
Today Nouriel Roubini points a finger at some of the worst offenders:
“Indeed, rating-agency downgrades, a widening of sovereign spreads, and failed public-debt auctions in countries like the United Kingdom, Greece, Ireland, and Spain provided a stark reminder last year that unless advanced economies begin to put their fiscal houses in order, investors, bond-market vigilantes, and rating agencies may turn from friend to foe. The severe recession, combined with the financial crisis during 2008-2009, worsened developed countries’ fiscal positions, owing to stimulus spending, lower tax revenues, and backstopping and ring-fencing of their financial sectors.
“The impact was greater in countries that had a history of structural fiscal problems, maintained loose fiscal policies, and ignored fiscal reforms during the boom years. In the future, a weak economic recovery and an aging population are likely to increase the debt burden of many advanced economies, including the United States, the UK, Japan, and several euro-zone countries.”
Roubini notes that monetizing debt has an irresistible allure to countries in already weak fiscal positions and to the PIGS (Portugal, Italy, Greece, and Spain) that have already shown lacking competitiveness in the global economy.
Last but not least, he sees the US and Japan in the crosshairs of bond vigilantes. For the US in particular, which has so many structural challenges, Roubini believes “Americans are deluding themselves that they can enjoy European-style social spending while maintaining low tax rates”. True indeed.
Read more about the events Roubini sees unfolding as these nations move to “prevent an Argentine-style outcome” in Project Syndicate’s coverage of the risky rich.
Rocky Vega
Rocky Vega is publisher of The Daily Reckoning. Previously, he was founding publisher of UrbanTurf and RFID Update, which he operated from Brazil, Chile, and Puerto Rico, and associate publisher of FierceFinance. He specialized in direct marketing at MBI, facilitated MIT Sloan School of Management programs, and has been featured on CBS. Vega graduated with honors from Harvard University, where he was on the board of Let’s Go Publications and directed business programs involving McKinsey, Goldman Sachs, and Harvard Business School faculty. He is also enrolled at the Stockholm School of Economics.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
