Interesting paper out of the Bank for International Settlements on The future of public debt: Prospects and implications:

Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue rising for the foreseeable future. A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades. Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.

These charts caught my eye (more after the jump):


Projected interest payments as a fraction of GDP (%)

Sources: OECD; authors’ projections.


The future of public debt: prospects and implications
Stephen G Cecchetti, M S Mohanty and Fabrizio Zampolli
Bank for International Settlements, March 2010
BIS Working Papers, No 300

Public debt/GDP projections

Sources: OECD; authors’ projections.

Category: Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “BIS: The Future of Public Debt”

  1. See also:

    Bernanke Says U.S. Should Tackle Debt

    Federal Reserve Chairman Ben Bernanke said Wednesday that huge U.S. budget deficits threaten the nation’s long-term economic health and should be addressed soon.

    Obama administration officials have argued that the economy, while improving, is still too weak to bear all the new taxes and spending cuts that would come with an aggressive deficit-reduction campaign. In remarks to the Dallas Chamber of Commerce Wednesday, Mr. Bernanke agreed, but said merely articulating a plan for reducing the deficit in the long run would help the economy now.

  2. [...] amount the US will have to pay on its burgeoning levels of debt has been rising steadily. Yields on Treasury bonds are the highest since Lehman’s, bar one [...]

  3. WFTA says:

    Easy stuff for the U.S. of A.:
    Raise/restore taxes on the wealthiest 10% of taxpayers with an eye toward net worth, not just earned income (if they don’t like it, they can invest in North Korea.)
    Go to a single payer health care system (Medicare for all.) Make it outcome driven and wring out the 55% of cost that is not improving care.
    Legalize all aliens with amnesty limited to illegal entry only (felonies here or in country of origin are grounds for deportation.) Then create an orderly legal entry program for the millions of young, hard-working people who want to be our future citizens and taxpayers.

    God, I love the smell of socialism in the morning.

  4. The Window Washer says:

    I feel like I was just slapped.
    Italy is in the best or second best shape of all these contries 30 years out? Damn. How long has it been since a projection put Italy near the top?

  5. Stuart says:

    But the real telling story comes out when you chart the % of interest payments as a fraction of COLLECTED TAXES.
    Unalterable and completely untenable path is conclusion. Train wreck dead ahead.

  6. Sunny129 says:

    Does these figures include the data regarding ‘off the balance sheet’ liabilities hidden Enron style accounting?

    How about the fiscal capability of each country in SERVICING the DEBT?

  7. gordo365 says:

    These numbers/graphs look wrong.

    From center on budget on policy

    2008 US gov spending = ~$3T = 21% GDP
    8% of that was debt service = 1.7% of GDP.

    Summary graph eyeballs 2010 US debt service at ~5% GDP.

    Did debt service as % GDP triple in 2 years??

  8. super_trooper says:

    Smooth lines!

  9. Peter Pan says:

    Is the BIS projecting very low bond yields (interest payment) for Japan all the way out to 2040?

    That’s insane !!

  10. DeDude says:

    The fiscal capability of each country is presumably taken into account by showing it as a % of GDP. The big issue is the political capability of each country to make the spending cuts and tax increases. To deal with something that is over 100% of GDP you must use both tools to a fairly drastic degree. There the US with its dysfunctional democracy is at a clear disadvantage. We seem unable to institute meaningful spending cuts or meaningful tax increases. So in the long run it will have to be solved by letting inflation run rampant until the national debt can be payed back with one big green piece of paper (worth about 2 loafs of bred). A shame because it will hurt the people who are saving rather than spending.

  11. super_trooper says:

    These projections are rediculous. Everybody knows the last 2 years have been abnormal. Extrapolating from extremes will most likely take you to……………….. extremes.

  12. Jim Fickett says:

    @super_trooper: No, the paper is using post-crisis, 2011 projected budgets, as the baseline.

    The debt already accumulated, the increasing cost of maintaining it (see the FT link above), plus the unfunded liabilities, are the big problems. Although the paper is warning about certain unpleasant scenarios, the main message is constructive — while inflation expectations are low, take advantage of it, and keep them there. From the paper,

    “So far the build-up of public debt in industrial countries has taken place against the backdrop of an exceedingly low interest rate environment. [that is unlikely to continue] … Although the chance of a government being forced to monetise its debt is rather remote in the short run, the chance that it could do so in the future is not insignificant. Therefore, the risk that long-term inflation expectations could suddenly become unanchored today is a possibility that should not be discounted.”

    Jim Fickett

  13. cognos says:

    This now ranks #1 as the stupidest thing said on BP.

    Besides the projections just being moronic, poor, meaningless. We just pay the interest to OURSELVES!

    Some people have been horribly worried about the “unsustainable” debt since 1985. Hmm, what are they missing?

  14. cognos says:

    US pays 24% of GDP as interest in 2040.

    at 5% nom Gdp growth, GDP is 4x in 2040. So “projected interest” is equal to today’s GDP.

    At 3% interest, that implies $500T in debt for US.

    Did these guys work at Moodys/ S&P in the subprime rating group?

  15. [...] piece of data in the argument that “if a path can not be sustained, it won’t be.” The Future of Public Debt shows that public debt as a fraction of GDP for many industrialized nations is growing and will [...]