Sovereign Debt Didn’t Go Away

IMF paper warns of 'savings tax' and mass write-offs as West's debt hits 200-year high

Debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, warns IMF paper

By Ambrose Evans-Pritchard 8:06PM GMT 02 Jan 2014

Much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund.

The IMF working paper said debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its “toolkit” for emerging market blow-ups.

“The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,” said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff.

The paper said policy elites in the West are still clinging to the illusion that rich countries are different from poorer regions and can therefore chip away at their debts with a blend of austerity cuts, growth, and tinkering (“forbearance”).

The presumption is that advanced economies “do not resort to such gimmicks” such as debt restructuring and repression, which would “give up hard-earned credibility” and throw the economy into a “vicious circle”.

Source:http://www.telegraph.co.uk/finance/financialcrisis/10548104/IMF-paper-warns-of-savings-tax-and-mass-write-offs-as-Wests-debt-hits-200-year-high.html

Comments:

We share the government overspending problem with Europe and we aren’t doing much either. Planning to print $900 billion a year out of thin air isn’t much different than printing $1 trillion.  Adding to federal spending for the next 2 years isn’t like cutting spending.  We are all kicking the can down the road to ruin. 

It looks like inflation, tax hikes, pension reductions and confiscation of private savings accounts is the IMF’s answer. A better way would be to unleash production of everything anybody would buy.  That’s what we should do. 

Norb Leahy, Dunwoody GA Tea Party Leader