Summary of Sustainability of Public Debt in the United States and Japan

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Sustainability of Public Debt in the United States and Japan summary
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In 2000, economists and policy makers in the United States pondered how the capital markets would adjust to endless budgetary surpluses wiping out the supply of risk-free US government bonds. But in short order, that problem became moot as surpluses gave way to rising deficits. Japan, on the other hand, has long endured “seemingly stratospheric” debt levels. Economist William R. Cline applies his sovereign debt model to the United States and to Japan to gauge how well and how long each country can maintain its fiscal stamina. getAbstract recommends his cogent outline of likely near-term developments and their impacts on American and Japanese sovereign debt levels.

In this summary, you will learn

  • Whether the 2011 sequester and 2012 budget have stabilized the United States’ fiscal situation,
  • How rapidly Japan’s sovereign debt is still likely to rise, and
  • How much tightening both countries will have to undertake to control their debt.
 

About the Author

William R. Cline is a senior fellow at the Peterson Institute for International Economics.

 

Summary

Sovereign debt is sustainable when its size, relative to GDP, remains stable or declines over time. While a country may be able to service high levels of debt due to currently low borrowing costs, changes in growth and interest rates in the long run ultimately determine a nation’s fiscal viability.<...

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