IMF Sees G7 Net Debt At 200% Of GDP By 2030; 441% By 2050
The IMF has issued a series of papers today whose sole purpose is to assuage fears that the world is headed for a sovereign default driven inferno, authored by Carlo Cottarelli and two other staffers, which concludes that markets currently "significantly overestimate"
the risk of sovereign debt default in the advanced economies. The idea for the papers, according to Cottarelli, was born out of a "sense of
frustration" after talking to two financial market analysts in Europe
who had "no focus on numbers, but more a feeling, a sensation things are
going bad and would continue to go bad." Well, actually the numbers are there, and as the IMF itself concludes G7, debt to GDP for the G7 countries which is currently 77%, will reach 200% by 2030 and 441% by 2050. But since the IMF paper is only focusing on a few months into the future, it may very well be right. In the meantime, we will stick with Morgan Stanley's recent analysis on the topic by Arnaud Mares, which concluded that sovereign defaults will happen, and likely in dramatic numbers, the only question is how.
While the bulk of the paper is nothing but a validation that the author has never read any of the works of Reinhart and Rogoff, the only relevant chart is the one below.
And yes, the very author who says, there is no need to worry about sovereign defaults, adds the following: "Under the current and future pressures on public finances—large primary gaps and rising health care and pension spending—public debt would spiral out of control in the absence of fiscal adjustment" and hilariously adds: "The surge in debt in this scenario, however, does not even take into account the possible negative feedback effects that higher debt could have on interest rates and economic growth."
The bold section, as opposed to the several hundred of other superfluous pages, also explains why the IMF has recently expanded its key credit facility to have virtually no borrowing cap.
But aside from all of that, the "sense of frustration" or "feeling" if you will, that "things are
going bad and would continue to go bad" is certainly soothed.
In other words if one takes Jim O'Neills perpetual hockeystick projection for G7 GDP which the Goldman analysis likely sees at about $200 trillion by 2050, then associated debt will be about $1 quadrillion. Congress: have fun with that debt ceiling.
Those who wish to join the group of lemmings with a castrated feeling of frustration and imminent dread, should read the IMF papers:
- Long-Term Trends in Public Finances in the G-7 Economies
- Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely
and there is a third one that completes today's Koolaid trifecta, but we are too hyponotized looking at the to S&P flatline to look for it.