Is higher government debt more risky?
On balance, the historical basis for austerity is not as robust or as fragile as proponents or detractors claim.
22 February 2013
While the frequency of default at higher debt levels is raised, history suggests that on average we go from a once in 333 year frequency to a once in 125 year frequency. This latter still represents a rare event.
There is no evidence that high debt/GDP means a higher risk of high or hyperinflation. Further there is little evidence of a systematic relationship between high debt and high real interest rates. As we are currently seeing, countries like the UK and US are enjoying lower rates than ever, even as debt goes up.
Perhaps the most important part of the debate seems a long way from a convincing resolution. The case for or against the impact of high debt on growth is yet to be convincingly made. In committing to one view over the other, both sides of the debate will be operating under considerable uncertainty.
* higher-government-debt-more-risky.pdf
Download the full report (PDF 42KB)
Posted In
Tagged
Latest news
The event explored today’s ‘always on’ world and the pressure Scots face as they struggle to balance life inside and outside of work.
Primary school children in Currie, Edinburgh put on their detective hats last week to learn more about fraud and scams thanks to the Royal Bank of Scotland MoneySense programme. Les Matheson, CEO of Personal Banking, tells us why it’s so important to financially educate young people.
New card features are being rolled out from today with all cards having a notch and raised dots.