Reinharts, Rogoff See Huge Output Losses From High Debt

[dkf]

The U.S. and other developed economies with high public debt potentially face “massive” losses of output lasting more than a decade, even if their interest rates remain low, according to new research by economists Carmen and Vincent Reinhart and Kenneth Rogoff.

In a paper published today on the National Bureau of Economic Research’s website, they found that countries with debts exceeding 90 percent of the economy historically have experienced subpar economic growth for more than 20 years. That has left output at the end of the period a quarter below where it would have been otherwise.

“The long-term risks of high debt are real,” they wrote. “Growth effects are significant” even when debtor nations are able to borrow “at relatively low real interest rates.”

In spite of those dangers, the economists said they are not advocating rapid reductions in government debt at times of “extremely weak growth and high unemployment.”

http://www.businessweek.com/news/2012-04-30/reinharts-rogoff-see-huge-output-losses-from-high-debt

[aquart]

1. Well, that was helpful.

In no way whatsoever.

[dkf]

2. It was a worldwide study crossing all types of governments in all periods with adequate data.

I bet all world leaders and their economic advisors know about this study. But hardly anyone in the public does. Thus the disconnect.

[cthulu2016]

5. +1

[rugger1869]

3. It's time for....

Jubilee!

[dkf]

4. If we forgive our own debt what happens to the social security fund

And how do we fund our $1 trillion deficit?

[cthulu2016]

6. looks like a confusion of correlation

I am guessing there is a much more meaningful correlation here -- that nations that accumulate high debt have reasons for doing so, and those reasons are typically things that are not good for the long haul.

Nobody accumulates debt for no reason as an abstract controlled experiment in the isolated effects of debt.

[dkf]

7. That may be so but it is definitely being cited in the financial community.

And the financial community has an impact on sovereign debt purchases enabling funding.