IMF: America’s debt problem is storing up trouble for the rest of the world
Economy
The high and rising level of US government debt risks driving up borrowing costs around the world and undermining global financial stability. This was reported by CNN, citing the International Monetary Fund.
The IMF said Wednesday that increased government spending, growing public debt and elevated interest rates in the United States had contributed to high and volatile yields — or interest rates — on Treasuries, raising the risk of higher rates elsewhere.
Its analysis found that a spike in yields on long-term US government bonds is associated with similar surges in government bond yields in other advanced and developing economies, with the latter suffering exchange rate turbulence as well.
“Loose fiscal policy in the United States exerts upward pressure on global interest rates and the dollar,” Vitor Gaspar, director of the IMF’s fiscal affairs department, told reporters. “It pushes up funding costs in the rest of the world, thereby exacerbating existing fragilities and risks.”
Higher interest rates make it more costly for households and businesses to service their loans, which can lead to defaults that cause losses at banks and other lenders, increasing financial instability.
The IMF expects US public debt to continue rising, helping drive government debt worldwide to close to 100% of global gross domestic product by 2029, from 93% last year.
The agency called on governments everywhere to exercise “fiscal restraint” in the world’s “biggest-ever election year.”
“History shows governments tend to spend more and tax less during election years,” it said.
Its analysis found that a spike in yields on long-term US government bonds is associated with similar surges in government bond yields in other advanced and developing economies, with the latter suffering exchange rate turbulence as well.
“Loose fiscal policy in the United States exerts upward pressure on global interest rates and the dollar,” Vitor Gaspar, director of the IMF’s fiscal affairs department, told reporters. “It pushes up funding costs in the rest of the world, thereby exacerbating existing fragilities and risks.”
Higher interest rates make it more costly for households and businesses to service their loans, which can lead to defaults that cause losses at banks and other lenders, increasing financial instability.
The IMF expects US public debt to continue rising, helping drive government debt worldwide to close to 100% of global gross domestic product by 2029, from 93% last year.
The agency called on governments everywhere to exercise “fiscal restraint” in the world’s “biggest-ever election year.”
“History shows governments tend to spend more and tax less during election years,” it said.
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