Global Debt dangers - Kenneth Rogoff
"Are brewing exchange-rate and debt crises in Argentina and Turkey localized events without broader implications? Or are they early warning signs of deeper fragilities in bloated global debt markets that are being exposed as the US Federal Reserve continues to normalize interest rates?"
With an economy ten times the size of Greece, a default in Italy would blow up the eurozone.
It is notable how much the IMF, the world’s debt and financial crisis watchdog, has been ratcheting up its warnings. After years of saying advanced countries no longer need to worry about their near-record public-debt levels – now averaging over 100% for general government debt – the IMF has started to warn that many countries may find themselves squeezed for fiscal space if faced with a new recession anytime soon.
Admittedly, there are those on both the left and the right who think “this time is different” for advanced economies. With no realistic danger (in their view) of a major war or financial crisis anytime soon, it is folly to exercise too much restraint on public debt or pension promises. This is dangerous thinking even for the United States, despite the greater fiscal scope it enjoys as the issuer of the global reserve currency. Very bad shocks can happen to any economy, and their sources might not be the ones we normally consider.
Kenneth Rogoff is also co-author of the highly acclaimed 2011 book reviewing the details of financial crises of recent centuries. "This Time Is Different: Eight Centuries of Financial Folly"