Managing Debt in an Overleveraged World

Debt still threatens the global economy. Debt as an investment in the future, delivering high yields or serving a long-term purpose is not necessarily a problem, notes economist Michael Spence for Project Syndicate. He reviews the risks: high levels of household and individual debt are more problematic than corporate or government debt; slowing growth without inflation could increase defaults; and aggressive monetary policies offer an “illusion” of stability that cannot be sustained over the long term, discouraging reforms. He urges borrowers and lenders to be careful about the kinds of debt they enter: “If the debt is financing growth-promoting investment, it may be a very good idea,” he concludes. “If, however, it is financing ‘current operations’ and raising short-term aggregate demand, it is highly risky.” – YaleGlobal

Managing Debt in an Overleveraged World

Debt continues to climb and economist Michael Spence warns that amounts may matter less than type and how much it serves the future
Michael Spence
Friday, April 29, 2016

Read the article from Project Syndicate.

Michael Spence, a Nobel laureate in economics, is professor of economics at NYU’s Stern School of Business, distinguished visiting fellow at the Council on Foreign Relations, senior fellow at the Hoover Institution at Stanford University, academic board chairman of the Asia Global Institute in Hong Kong, and chair of the World Economic Forum Global Agenda Council on New Growth Models. He was the chairman of the independent Commission on Growth and Development, an international body that from 2006-2010 analyzed opportunities for global economic growth, and is the author of The Next Convergence – The Future of Economic Growth in a Multispeed World.

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