Do it yourself

  The issue of high and rising US public debt is a subject matter of public discussion in Indian streets. Using a common Dalal Street phrase I can say that every paanwalla, taxi driver, and barber is now discussing how unsustainable US public debt is. For example, listen to this boy . From top economists, analysts, and global strategists to a common man on the street, all are worried about an imminent US default and its impact on the global financial system, especially the developing and underdeveloped countries. Currently, the US public debt is close to US$35trn (Appx 125% of annual GDP) and is projected to double in the next eight years. The current US government's annual interest payments are more than US$1trn (Appx 20% of annual federal revenue; 14% of annual federal spending and 4% of GDP). The average interest rate on the entire debt is less than 3% p.a. As of June 2023, 43% of this debt was owned by the Federal Reserve System and State and Local Governments. 32% of the debt...

  One of the elementary principles of economics is that the price of anything is determined by the equilibrium of demand and supply. Though sometimes, in the short term, a state of inequilibrium may exist leading to higher volatility in prices; the equilibrium is usually restored by operation of a variety of factors. This principle usually applies to all things having an economic value, including currencies, gold and money (capital). The traits of human behavior like "greed", "fear", "complacence", "renunciation", and "aspirations" are usually accounted for as the balancing factors for demand and supply and not considered as determinants of price as such. However, the case of currencies and capital is slightly complex given currency’s dual role as a medium of exchange and a store of value; and use of money as a policy tool to achieve the objectives of price stability, financial inclusion, poverty alleviation, social justice etc. As a me...

All three major global credit rating agencies have assigned the lowest possible investment grade rating to India’s sovereign credit, placing India just one notch above the junk grade. For example, Moody’s Investors Services has assigned Baa3 (stable) rating to India’s sovereign credit, just one notch above the junk rating - C. The Government of India is making a strong pitch to the rating agencies for upgrade of sovereign credit, arguing that India’s economy is the fastest growing major economy in the world, with strong macroeconomic fundamentals. Many government officials, politicians and market participants have challenged the assessment of these ratings agencies often terming it as unfair. On the other hand, Moody’s Investors Services has recently flagged high public debt and risks of fiscal slippages ahead of general elections in 2024 to support their rating stance. Moody’s reportedly said, “As the government balances the commitment to longer-term fiscal sustainability against its ...

Continuing from last week ( see How will this tiger ride end? ) As per various reports, central banks and governments worldwide have unleashed more than $15 trillion of stimulus to counter the economic slowdown caused by the outbreak of COVID-19 virus. Considering that the global economy had still not recovered fully from the global financial crisis (2008-09), this slowdown appears much more serious. It is like a cancer patient relapsing after responding to the treatment and showing some signs of recovery. As per the estimates made by the Institute of International Finance estimates (IIF), total global debt has risen $87 trillion since 2007. Out of this government debt accounts for about $70 trillion, while the rest is private debt. The IIF estimates show that the total global debt may rise year to over 340% of the global GDP, assuming moderate recession of 3% in Global GDP. A more severe decline in economic activity will of course make the situation worse. The questio...

A large part of global economic and financial research these days is focused on the burgeoning debt at all levels - government, business and household. The global government debt is now estimated to be 105% of global GDP and is still rising briskly. In the year 2020 itself the global government and private debt burden may increase by US$200trn, approximately 35% of global GDP. According to Bank of International Settlements, the percentage of companies with less than one interest coverage ratio has exploded since the global financial crisis (GFC). This number is witnessing sharp rise in the wake of COVID-19 led economic crisis. In Indian context also, we have seen sharp rise in fiscal deficit (rise in government debt); corporate debt and household debt. Also, the quality of debt has deteriorated materially at all levels. The ratio of India’s public debt to GDP is expected to scale a new high at the end of FY21 due to record borrowing by the central and state governments and...