Articles - US debt crisis - causes and implications


 Standard Life Investments, the global investment manager, suggests that US public debt is fast approaching levels which could seriously damage future growth prospects.
 Addressing this problem will be an important focus for politicians in the run up to, and after, the Presidential election in 2012.

 In the latest edition of Global Perspectives the leading investment house examines the debt burden facing the USA, in the light of the recent downgrade to its credit rating, and the potential impact on financial markets.

 Douglas Roberts, Senior International Economist at Standard Life Investments noted:

 "After years of living beyond its means, the US economy is in for a period of significantly slower growth, whatever the outcome of next year's Presidential election. Given estimates about what needs to happen to spending and taxes just to stabilise the debt/GDP ratio, both private and public spending trends will be much less robust going forward. But, if the politicians fail to grasp the nettle, it will be damaging levels of debt that will hinder economic expansion. The ramifications of the rise in debt levels have persuaded some to dub the economic outlook as the ‘new normal', in which the economy will typically grow more slowly, say by 1-2% rather than 2-3% a year, and in which unemployment levels will be higher than normal. The US is not the only economy facing this reality, but it is the most high profile.

 "The imperative for a clear political plan to address the fiscal challenges presented by the level of public debt was effectively raised at the recent Jackson Hole summit by several central bankers. The outcome of the 2012 elections could help to define just how serious an attempt is made to rein in the deficit. But, unfortunately, the checks and balances of the US political set-up are more likely to see a continuation of the present log-jam. If that were to be the case then there could be a return of the bond vigilantes - those bond investors who oppose government policies that they regard as inflationary, by selling bonds and driving yields up.

 "Whatever way the correction comes about, it will happen - the problem is knowing when. As Reinhart and Rogoff pointed out in their study(6), ‘levels of debt of more than 90% of GDP are relatively rare'. And, as Herb Stein quipped ‘if something can't go on forever, it will stop."
  

Back to Index


Similar News to this Story

Pension scheme cyber attacks are you prepared
In the ever-evolving world of cyber risks, governing bodies, trustees and pension boards must understand their responsibilities and know how to effect
Final Day for nominations for the 2025 Actuarial Post Awards
We would like to announce, that after yet another record number of nominations for the Actuarial Post Awards that today is the final day for nominatio
The global mining insurance market is softening, fast
Excavating value in a soft market. Rates are down, coverage is broadening, and capacity is strong. But risk leaders must stay sharp. The property dama

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.