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