“Interest
rate effects of debt seem to become more pronounced, discretionary
fiscal policy becomes less effective because offsetting private saving
responses become stronger and trend growth seems to suffer,” it said.
As
a result, for a standard country, “building in a safety margin to avoid
exceeding the 70 to 80 percent levels in a downturn suggests aiming for
a 50 percent or even lower long-term debt target during normal times,”
the report said.
http://www.cnbc.com/id/47026928
4 comments:
I think it is important that countries do take action to manage and stabilize their debt, especially since the debt in the United States and many other countries are reaching unsustainable levels. The Committee for a Responsible Federal Budget stated that the public debt in the United States is projected to grow to 91% of GDP by 2025, 149% in 2040, and 415% in 2080. This is outrageous and no country can support these debt levels, which is why change needs to occur. However, cutting the debt level to 50% of GDP may be too drastic of an action considering many countries have a debt percentage of GDP over 100. This could threaten economic recovery even more than its current state. Therefore, smaller changes in percentages would be a much more ideal solution to avoid a huge crisis from occurring in the future.
I agree with you Lauren, and I feel as though the OECD is copping out of giving any valuable information. I think they have observed that "prudent" debt levels are around 50%, and issued the recommendation. However, in their recommendation they ignored the fact that so many countries were at debt levels substantially above their recommended figure, and failed to give any practical advice in terms of the means and speed by which to reduce the debt levels. Without any concrete recommendations, the OECD can distance themselves from any negative action taken to reduce public debt.
This is an interesting article, I believe is useful for many countries as a reference. Debt is always a heat debated topic. Economists agree that a reasonable amount of debt is conducive to the development of a country. However, once the debt of a country beyond the range that the country could support, it will be difficult to handle and became a serious problem that will prevent a healthy economic growth of a country. Therefore, it is very necessary and useful to study on the topic what is the reasonable range for a country’s debt.
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