History Tells Us to Worry About Inflation
Macroeconomics always has its fads: The latest is embracing public debt and not worrying about inflation. But fashions change very quickly.
Something to ponder.
Photo: Bloomberg
Just like clothes and food, macroeconomics has its fashions. The latest is for public debt. From the OECD to the International Monetary Fund, global organizations that traditionally supported fiscal restraint have become much more relaxed about sovereign borrowing.
The argument is that debt sustainability is less of a problem if central banks keep interest rates ultra-low. Governments should ditch old fetishes, such as the ratio between debt and gross domestic product, and concentrate on more meaningful measures like interest payments as a percentage of GDP. You can see the appeal. Look at Greece, where a change in borrowing costs and loan maturities has made a huge debt pile seem manageable.