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Global Government Debt Crisis Emerging

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New American
April 19, 2012

A sugar-coated analysis of the global economy released by the International Monetary Fund April 17 nevertheless contains dire warnings about a world in a looming global government bond crisis.

Though the IMF projects a relatively sunny economic forecast for the United States and Japan over the next two years (along with a debt crisis-driven recession for Europe in 2012), the IMF warns that outlandish U.S. and Japanese budget deficits are pushing economic indicators to the breaking point. “Without more action than currently planned,” the IMF report projects that by next year “debt ratios are expected to reach 256 percent in Japan, 124 percent in Italy, close to 113 percent in the United States, and 91 percent in the euro area over the forecast horizon.” The IMF notes that austerity measures in Europe will cap the debt levels after 2013, while “in Japan and the United States the debt ratios are projected to rise through the forecast horizon, which extends to 2017.”

In other words, the IMF says that the United States and Japan have no plan to ever stem their deficits and record borrowing, creating “latent risks include disruption in global bond and currency markets as a result of high budget deficits and debt in Japan and the United States.”  Economic counselor and director of the IMF’s Research Department Olivier Blanchard stressed in an April 17 press conference that the United States and Japan are on a fiscally unsustainable path. “Insufficient progress in designing such a medium-term plan is especially noticeable in the United States and in Japan.”

Japan will likely be the next bond bubble to burst. Japan already has far more debt than Greece did when that European nation defaulted to bond holders, but Japan’s high debt-to-GDP ratio has been counterbalanced by high levels of financing of the debt by Japanese citizens, who own 95 percent of the country’s sovereign debt.

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This article was posted: Thursday, April 19, 2012 at 2:42 am

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