The surge in government borrowing in all the major advanced economies due to the pandemic has had few precedents, even in wartime. In the US, for example, public borrowing in the quarter from April to June 2020 alone is expected to reach $3tn, almost 15 per cent of this calendar year’s gross domestic product.
The IMF estimates that US government debt will exceed 130 per cent of GDP after the recession, more than 30 percentage points higher than a decade ago. As the world’s largest borrower, the country will no doubt influence how other nations manage their debts, in terms of the quantity and duration of the instruments issued by governments, and any bonds purchased by central banks.
Assuming countries are unwilling to introduce “debt jubilees” to write off their obligations, or swap them into equity, the public debt mountains will need to be managed indefinitely, with little immediate prospect of reducing their size. The larger the scale, the greater the economic costs of debt mismanagement.