Lending to a national government in a currency other than its own does not give the same confidence in the ability to repay, but this can be offset by a reduction in foreign exchange risk for foreign lenders. On the other hand, sovereign debt in foreign currencies cannot be eliminated by the onset of hyperinflation; [26] and this increases the credibility of the debtor. Typically, small states with volatile economies have most of their sovereign debt in foreign currencies. For eurozone countries, the euro is the local currency, although no state can trigger inflation by creating more money. In the dominant economic policy generally attributed to John Maynard Keynes` theories, sometimes referred to as Keynesian economics, there is a tolerance for public debt high enough to pay for public investment in lean times, which, when boom periods follow, can then be repaid by increased tax revenues. Empirically, however, public debt in developing countries is pro-cyclical, as developing countries have more difficulty accessing capital markets in lean times. [28] Catalonia is by no means the only Spanish region in deep red. With half of Catalonia`s GDP, Valencia is also heavily indebted. The same goes for Andalusia, Spain`s most populous region, which has asked the central government for a bailout. With Extremadura, Andalusia has a GDP per capita of 17,000 euros against 30,000 euros for Madrid.

The Congressional Budget Office has estimated that the government`s public debt will reach 102% of GDP by the end of 2021. In Q2 2021, it was 98.3%, with a peak of 105% at the end of Q2 2020. This is the highest level since 1946. Since 1970, when the national debt was about 26.7% of GDP, the debt has gone through several different periods, remained relatively stable in the 1970s, and increased significantly in the 1980s and early 1990s under Reagan and George H.W. Bush presidencies. It peaked at 48.3% of GDP in Q1 1994 before falling to a low of 30.9% in the second quarter of 2001 under the Clinton administration. Under George W. Bush, he began to climb again, first slowly, then abruptly. However, the South Sea Company`s returns were less certain. For every £100 of debt subscribed, the company could issue a corresponding number of shares. This would have amounted to £31,000,000 if all the debts had been exchanged.

If the share price had remained at £100, all the shares would have been allocated for the exchange and the company would have made little profit. But if the share price were to rise, fewer shares would be needed to compensate retirees. Thus, if the shares had been valued at £200, only £15,500,000 would have been allocated to compensate pensioners, so that the remaining shares could be sold on the open market. But in fact, the ploy captured the public`s imagination and the share price rose dramatically, finally reaching a face value of £950 on July 1, 1720. By the end of the conversion process, £26,000,000 of the national debt had been converted. However, these pensioners had only been compensated with shares of the company in the amount of £8,500,000, so that £17,500,000 of shares could be sold on the open market at an inflated price. Table 7.16 shows the detailed performance of the 10 countries with the highest public debt for the period 1980-2012. In 2012, European countries such as Greece and Italy were among the top 10 countries with the highest public debt.

In Asia, Japan and Singapore recorded the worst results. However, unlike weak European countries, Japan and Singapore are both Asian countries with strong performance in international reserves. Many countries with high sovereign debt are small, weak developing countries known as „fragile states.” They are characterized by weak economic performance due to instability and internal fragmentation. Many of these countries were former colonies, but gradually gained their independence after World War II. Although these countries claim to be developing countries, their economic performance is unsatisfactory and their growth remains insignificant. All the while, some of these countries have embraced left-wing ideology and complained about their colonial status. As colonies or countries of the „third world”, they were exploited when their resources were extracted by former imperial powers, so that they became „dependent or peripheral” states (Fanon, 1967; Lichtheim, 1971; Brown, 1974; Amin, 1976). However, after decades of political independence, these countries are still restless, disorganized and remain „small”, even though some of these countries are endowed with rich natural resources and have received aid and support from abroad and international institutions. Unfortunately, these countries never focus on „supply-side” factors and lack „homemade” skill. The three approaches discussed in this chapter provide useful tools for conducting a debt sustainability analysis. Applied to the current fiscal position of developed countries, all three suggest that significant fiscal adjustments are still needed, that they are likely to entail significant social costs, and that they are likely to continue to be tested by the potential risk of default in domestic sovereign bond markets.

National debt is the amount a country owes to lenders outside itself. This can include individuals, businesses, and even other governments. The term „sovereign debt” is often used as a synonym for the term sovereign debt. In all four regressions, public debt has a negative and significant coefficient. This applies to either the intermediate estimator or the pooled estimator. Fixed effects (the internal estimator) and the sGMM estimator confirm the negative impact of public debt on private loan growth. The sGMM estimate (-0.36) shows that a 10% increase in the debt ratio is followed by a 0.7 percentage point slowdown in the annual change in the credit ratio. (De Bonis & Stacchini, 2013, p. 297) In turn, borrowers spend this money on goods and services, which creates jobs and tax revenue. Low interest rates have been used by the United States, the European Union, the United Kingdom and other countries with some success. However, interest rates that are kept at or near zero for an extended period of time have not proven to be a panacea for debt-ridden governments.

Tax cuts introduced by several presidential administrations have further increased the national debt: since debt plays such an important role in economic progress, it must be adequately measured to convey the long-term effects it has. Unfortunately, assessing a country`s public debt in relation to the country`s gross domestic product (GDP), while common, is not the best approach for several reasons. When interest rates rise, it becomes more expensive for a country to refinance its existing debt. Over time, the income must be allocated to debt repayment and less to government services. As with Europe, such a scenario could lead to a sovereign debt crisis. Periods of deflation can theoretically reduce the amount of debt, but they increase the real value of debt. Because the money supply is scarce, money is valued higher in deflationary times. Even if debt payments remain unchanged, borrowers actually pay more. For example, while some authors claim that U.S. debt has never declined since 1961, others claim that it has declined several times since then, depending on whether they measure the dollar amount or the debt ratio.

Similar contradictory arguments and supporting data can be found for almost every aspect of any discussion of federal debt reduction. In practice, the market interest rate on debt tends to be different from that of different countries. One example is the borrowing by various countries of the European Union in euros. Although the currency is the same in all cases, the return demanded by the market for the debt of some countries is higher than for others. .