Major economies that fail to address their mounting debt issues will die a “fiscal death,” the head of investment and wealth advisory Laffer Tengler Investments, Arthur Laffer, has warned.
In an interview with CNBC this week, he predicted a “decade of debt,” adding that the borrowing crisis has embraced both developed and emerging countries, and it is not going to “end well.”
Global debt has surged by $100 trillion from a decade ago and hit a record of $307.4 trillion last September, amid the biggest surge in global interest rates in 40 years, according to the economist.
Wealthy countries such as the US, UK, France, and Japan account for more than 80% of that increase due to their uncontrolled accumulation of debt. China, India, and Brazil saw the most pronounced growth of borrowings among emerging markets.
“I would expect that some of the bigger countries that don’t address their debt issues will die a slow fiscal death,” Laffer said, adding that some emerging economies “could quite conceivably go bankrupt.” While low-income countries are at high risk of debt distress, repaying debt would be particularly problematic for high-income countries due to an aging population and a lack of workforce, the economist warned.
The most recent report by the Institute of International Finance shows that the share of debt has hit a staggering 336% of global GDP compared to an average debt-to-GDP ratio of 110% in 2012 for advanced economies, and 35% for emerging markets.
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