The IMF recently warned China that four-fifths of its banks need more capital, while the Trump administration’s tax plan threatens to explode the US budget deficit. Is debt poised to wreck global financial stability?
- China has the savings to address its growing debt burden, according to Andrew Sheng and Xiao Geng, though it should focus on replacing debt with equity.
- Kemal Derviş sees little short-term global debt risk, but warns that now is no time to sacrifice longer-term structural reforms on the altar of trickle-down economics.
- Carmen Reinhart disagrees, arguing that policymakers should begin emphasizing debt restructuring – before it’s too late.
- For Michael Spence, low long-term interest rates and deficient short-term aggregate demand justify relaxing fiscal constraints for investment.
- But Martin Feldstein thinks G7 countries should aim for budget deficits of 2% of GDP, in order to bring down their long-term debt ratios.