Advanced economies to borrow $10.2 trillion in 2011

November 9, 2010

Yesterday, The Wall Street Journal reported that, according to the International Monetary Fund’s “Fiscal Monitor,” advanced economies will have to borrow a staggering $10.2 trillion in 2011 to “repay maturing bonds and finance their budget deficits.” This represents a combined 27% of the economic output of the fifteen countries considered in the analysis and is up 7% from this year. The U.S. alone will have to come up with $4.2 trillion, or nearly 30% of its annual economic output. This is, needless to say, unsustainable.

On a concerning note, the report asserts that global governments are simply unprepared to handle the fiscal crisis:

A review of fiscal plans for a group of 25 countries (including all of the G-20) finds that 90 percent of them have announced that they will gradually reduce their medium-term deficits, with plans typically through 2013….The vast majority of adjustment plans are intended to be expenditure-based, which is also appropriate in light of the high spending level in many of them. However, plans fall short of what is required in various respects…in many cases detailed adjustment measures have not been identified.

[F]ew countries have explicitly committed to a long-run target for their public debt ratio, or—where such a target predated the crisis—have indicated clearly when they intend to achieve it, thus leaving the ultimate fiscal strategy goal uncertain.

As the recent elections have exhibited, the public wholly disagrees with, and recognizes the ineffectiveness of, out-of-control spending touted as necessary for economic recovery. With $14 trillion of debt and a $1.4 trillion deficit, Americans are becoming increasingly aware that spending cuts represent the road to recovery.

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