National and Global Debt There are 3 articles discussing national and global debt Article 1 - Is Debt a Sin? By ELHAM SAEIDINEZHAD6 MARCH 2020 In the recentworld bank reportpublished in the first week of January, the Washington D.C.-based group said there had been four waves of government debt accumulation over the last 50 years. In 2018, for instance, global debt climbed to a record high of about230% of gross domestic product(GDP). The critical drivers of the national debt level are government expenditures on welfare programs such as health insurance, education, and social security. The report, aligned with the premises of standard macroeconomic theories, warns that these episodes will not have a happy ending. The recommendation, therefore, is to reduce these public programs. The issue is that these results are generated by unrealistic assumptions about interest rates and the economics of financial institutions that motivates supply-demand frameworks. Once we consider more sensible assumptions, there might be a happier ending for governments' initiatives to support welfare programs. Article 2 - Debt-to-GDP Ratio ByWILL KENTON and Reviewed byJULIUS MANSA Updated May 4, 2021 What Is Debt-to-GDP Ratio? The debt-to-GDP ratio is the metric comparing a country's public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country'sability to pay back its debts. Often expressed as a percentage, this ratio can also be interpreted as the number of years needed to pay back debt, if GDP is dedicated entirely to debt repayment. KEY TAKEAWAYS The debt-to-GDP ratio is the ratio of a country's public debt to its gross domestic product (GDP). Often expressed as a percentage, debt-to-gdp ratio can also be interpreted as the number of years needed to pay back debt, if GDP is dedicated entirely to debt repayment. The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default, which could cause a financial panic in the domestic and international markets. A study by the World Bank found that if the debt-to-GDP ratio of a country exceeds 77% for an extended period of time, it slows economic growth. Understanding Debt-to-GDP Ratio A country able to continue paying interest on its debt--without refinancing, and without hampering economic growth, is generally considered to be stable. A country with a high debt-to-GDP ratio typically has trouble paying offexternal debts(also called "public debts"), which are any balances owed to outside lenders. In such scenarios, creditors are apt to seek higher interest rates when lending. Extravagantly high debt-to-GDP ratios may deter creditors from lending money altogether. Debt-to-GDP Ratio is calculated by the following formula: Debt to GDP = Total Debt of Country / Total GDP of Country When a country defaults on its debt, it often triggers financial panic in domestic and international markets alike. As a rule, the higher a country's debt-to-GDP ratio climbs, the higher its risk ofdefaultbecomes. Although governments strive to lower their debt-to-GDP ratios, this can be difficult to achieve during periods of unrest, such as wartime, or economic recession. In such challenging climates, governments tend to increase borrowing in an effort to stimulate growth and boost aggregate demand. This macroeconomic strategy is a chief ideal in Keynesian economics. Economists who adhere tomodern monetary theory (MMT)argue that sovereign nations capable of printing their own money cannot ever go bankrupt, because they can simply produce more fiat currency to service debts. However, this rule does not apply to countries that do not control their own monetary policies, such as European Union (EU) nations, who must rely on the European Central Bank (ECB) to issue euros. A study by the World Bank found that countries whose debt-to-GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns ineconomic growth. Pointedly: every percentage point of debt above this level costs countries 1.7% in economic growth. This phenomenon is even more pronounced in emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%. According to the U.S. Bureau of Public Debt, in 2015 and 2017, the United States had debt-to-GDP ratios of 104.17% and 105.4%, respectively.To put these figures into perspective, the U.S.'s highest debt-to-GDP ratio was 106% at the end of World War II, in 1946.Debt levels gradually fell from their post-World War II peak, before plateauing between 31% and 40%in the 1970sultimately hitting a historic 23% low, in 1974.Ratios have steadily risen since 1980 and then jumped sharply, following 2007's subprime housing crisis and the subsequent financial meltdown. The landmark 2010 study entitled "Growth in a Time of Debt", conducted by Harvard economists Carmen Reinhart and Kenneth Rogoff, painted a gloomy picture for countries with high debt-to-GDP ratios.However, a 2013 review of the study identified coding errors, as well as the selective exclusion of data, which purportedly led Reinhart and Rogoff to make errant conclusions.Although corrections of these computational errors undermined the central claim that excess debt causes recessions, Reinhart and Rogoff still maintain that their conclusions are nonetheless valid. The Role of United States Treasuries The U.S. government finances its debt by issuing U.S. Treasuries, which are widely considered to be the safest bonds on the market. The countries and regions with the 10 largest holdings of U.S. Treasuries are as follows: Taiwan at $182.3 billion Hong Kong at $200.3 billion Luxembourg at $221.3 billion The United Kingdom at $227.6 billion Switzerland at $230 billion Ireland at $264.3billion Brazil at $246.4 billion The Cayman Islands at $265 billion Japan at $1.147 trillion Mainland China at $1.244 trillion What's the Main Risk of a High Debt-to-GDP Ratio? As a rule, the higher a country's debt-to-GDP ratio climbs, the higher its risk of default becomes. If a country defaults on its debt, it often triggers financial panic in domestic and international markets alike. A study by the World Bank found that countries whose debt-to-GDP ratios exceeds 77% for prolonged periods, experience significant slowdowns in economic growth. Pointedly, every percentage point of debt above this level costs countries 1.7% in economic growth. This phenomenon is even more pronounced in emerging markets, where each additional percentage point of debt over 64%, annually slows growth by 2%. How Does Modern Monetary Theory (MMT) View National Debt? Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries, like the U.S., need not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency. Since their budgets aren't like a regular household's, their policies should not be shaped by fears of rising national debt. They argue that, since these sovereign nation have the ability to print as much of their own money to service their debts, they cannot ever go bankrupt, which would make ratios, like debt-to-gdp useless. Which Countries Have the Highest Debt-to-GDP Ratios? As of December 2020 (source:tradingeconomics.com), Venezuela had the highest debt-to-gdp ratio at 350, which was a sharp increase from its prior reading of 233. This was likely due to the lack of oil demand brought on by the COVID-19 pandemic. Next was Japan with a reading of 266, a relatively modest rise from its prior reading of 238. The U.S. and U.K. were 19thand 20th with debt-to-gdp ratios of 108 and 100 respectively. Article 3 - The 2020 Long-Term Budget Outlook https://www.cbo.gov/publication/56598 At a Glance Each year, the Congressional Budget Office publishes a report presenting its projections of what federal deficits, debt, spending, and revenues would be for the next 30years if current laws governing taxes and spending generally did not change. This report is the latest in the series. Even after the effects of the 2020 coronavirus pandemic fade, deficits in coming decades are projected to be large by historical standards. In CBO's projections, deficits increase from 5percent of gross domestic product (GDP) in 2030 to 13percent by 2050larger in every year than the average deficit of 3percent of GDP over the past 50years. By the end of 2020, federal debt held by the public is projected to equal 98percent of GDP. The projected budget deficits would boost federal debt to 104percent of GDP in 2021, to 107percent of GDP (the highest amount in the nation's history) in 2023, and to 195percent of GDP by 2050. High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities. After the effects of increased spending associated with the pandemic dissipate, spending as a percentage of GDP rises in CBO's projections. With growing debt and higher interest rates, net spending for interest nearly quadruples in relation to the size of the economy over the long term, accounting for most of the growth in total deficits. Also increasing are spending for Social Security (mainly owing to the aging of the population) and for Medicare and the other major health care programs (because of rising health care costs per person and, to a lesser degree, the aging of the population). Once the effects of decreased revenues associated with the economic disruptioncaused by the pandemic dissipate, revenues measured as a percentage of GDP are projected to rise. After 2025, they increase in CBO's projections largely because of scheduled changes in tax rules, including the expiration of nearly all of the changes made to individual income taxes by the 2017tax act. After 2030, they continue to risebut that growth does not keep pace with the growth in spending. Most of the long-term growth in revenues is attributable to the increasing share of income that is pushed into higher tax brackets. Because future economic conditions are uncertain and budgetary outcomes are sensitive to those conditions, CBO analyzed how those outcomes would differ from its projections if productivity growth or interest rates were higher or lower than the agency expects. Even if economic conditions were more favorable than CBO currently projects, debt in 2050 would probably be much higher than it is today. CBO now projects that debt as a percentage of GDP will be 45percentage points higher in 2049 than the agency projected last year. Larger projected deficits in 2020 and 2021 contribute significantly to that difference. The increase in those deficits results primarily from the effects of the pandemic and actions taken to respond to it. Discussion Questions Please answer following questions 1Do you think the 2018 corporate tax reform reducing the corporate federal income tax rate from 35% to 21% had any impact on the debt? Explain. 2Do you think the economic stimulus (checks to individuals and aid to small businesses) had any impact on the debt? Explain. 3Do you think the United States should take action to reduce the amount of debt? Explain