A new issue of the IMF Fiscal Monitor presents evidence indicating that current public debt, if not reduced to levels before the financial crisis, will result in depressed economic growth for years.
http://blog-pfm.imf.org/pfmblog/2010...ges-ahead.html
“The key points made in the May 2010 Fiscal Monitor are the following:
- In many countries, fiscal adjustment will require a sizable, and sometimes unprecedented, effort. The Monitor presents a broad outline of policies to achieve this adjustment. While the economic recovery is proceeding faster than expected, fiscal balances are not improving commensurately.
- Excluding financial sector support, headline and cyclically adjusted fiscal balances are expected to worsen further in advanced economies this year, contributing to a sustained rise in public debt. By contrast, deficits remain markedly lower in emerging economies. Here too, however, progress in reducing deficits has been slower than expected.
- As economic and financial conditions normalize, support to financial sectors is being unwound and asset recovery has begun.
- Risk of spillovers of sovereign risk across advanced countries is significant, at a time when advanced countries will need to tap bond markets in unprecedented amounts.
- New research on government debt and growth indicates that high public debt may hamper growth, mainly through its impact on domestic investment and productivity.
- Fiscal strategies should aim at gradually but steadily and significantly—reducing public debt ratios, rather than just stabilizing them at their elevated post crisis levels. Failing to do so would ultimately weaken the world’s long-term growth prospects. [emphasis added]"
Some may find the potential solutions outlined by the report to be just as frightening as the debt itself. They include instituting a VAT, taxing carbon emissions, and raising property taxes. To be fair, however, the report also suggests cracking down on tax evasion, freezing discretionary per capita spending, and moderating expenditures on public pensions.
The report is long at 91 pages. But I strongly suggest reading the “Foreword” and “Main Themes” sections, at the very least, if you care about this issue and its potential consequences. The report is especially interesting in light of Europe's evolving debt crisis.



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