Project Syndicate: Debt Shackles Return

Accelerating global growth is based on rising public and public debt. Economist Michael Heise counts such debt among the most serious challenges for the global economy. The Bank for International Settlements reports that total private and public debt of households, government agencies, corporations and other entities not in the financial sector – or non-financial debt – amounts to more than 240 percent of global GDP, up from 210 percent before the 2007-2008 financial crisis. Rising debt will continue “as many major central banks – including the European Central Bank and the Bank of Japan – have not just welcomed the recovery in lending, but are even aiming to stimulate more credit-financed growth,” he writes. “Only the US Federal Reserve and the People’s Bank of China are taking steps to rein in bank lending.” During boom periods, governments and individuals alike should reduce debt. Central banks eventually must respond to excessive debt and Heise offers remedies: Central banks should use interventions with care, avoid negative deposit rates, emphasize use of forward guidance to influence rate expectations, unwind stimulus programs, limit overheated markets, prevent real estate bubbles and ensure that debt is focused on productive uses for the long term. – YaleGlobal