cover image: Verbatim - Should We Worry About Deficits When Interest Rates Are So Low?

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Verbatim - Should We Worry About Deficits When Interest Rates Are So Low?

21 Sep 2021

Depending on the country in question, a In a world of low interest rates, what indicators doom-loop crisis could involve a loss of central bank should we look at when assessing the fiscal independence, high inflation rates, a depreciated sustainability of government debt? The traditional currency and, in the most extreme of circumstances, canary in the coal mine is the ratio of debt-to-GDP. [...] The size of that negative As with the ratio of debt to GDP, there is no magic primary surplus is equal to r - g times the initial ratio upper bound for the ratio of real interest payments to of debt to GDP. [...] Then the US Unfortunately, when viewed against the could run a primary deficit equal to 1 percent of GDP background of the data, the leeway provided by the forever without affecting the ratio of debt to GDP. [...] The average value of the government debt at time t, and st represents the net primary budget deficit in the US between 2010 and time t primary deficit of the government as a ratio of 2019 was 3.42 percent. [...] ensure ourselves against a fiscal crisis in the US, the So, to assess the duration of government debt, Canadian government should revert to its virtuous we need to consolidate the balance sheets of the pre-COVID fiscal policy.
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13
Published in
Canada