Publishing Institution: The Cato Institute / Publication Year: within 10 Years / Topic: Debt

Author:: William R Cline
Publication Date:: 10-2021
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: The worst pandemic in 100 years has hit the United States at a time when economic thinking has become more comfortable with high public debt, facilitating an aggressive response in public spending for relief that has reached a remarkable 27 percent of GDP.1 One reason for the receptiveness to large spending has been the perception that the fiscal stimulus in the Great Recession of 2007–2009 erred on the side of excessive caution and left an aftermath of unduly slow growth. More fundamentally, low real interest rates in recent years have shifted the center of gravity in macroeconomic analysis away from concern about chronic deficits and rising debt toward a certain benign neglect of debt as a problem.
Topic:: Debt, Interest Rates, Sustainability, and COVID-19
Political Geography:: North America and United States of America

Author:: Steve H. Hanke
Publication Date:: 06-2020
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: Monetary instability poses a threat to free societies. Indeed, currency instability, banking crises, soaring inflation, sovereign debt defaults, and economic booms and busts all have a common source: monetary instability. Furthermore, all these ills induced by monetary instability bring with them calls for policy changes, many of which threaten free societies. One who understood this simple fact was Karl Schiller, who was the German Finance Minister from 1966 until 1972. Schiller’s mantra was clear and uncompromising: “Stability is not everything, but without stability, everything is nothing” (Marsh 1992: 30). Well, Schiller’s mantra is my mantra. I offer three regime changes that would enhance the stability in what Jacques de Larosière (2014) has asserted is an international monetary “anti-system.” First, the U.S. dollar and the euro should be formally, loosely linked together. Second, most central banks in developing countries should be mothballed and replaced by currency boards. Third, private currency boards should be permitted to enter the international monetary sphere.
Topic:: Debt, Foreign Exchange, Monetary Policy, Developing World, Inflation, and Currency
Political Geography:: Europe, United States of America, and European Union

Author:: Jeffrey Miron
Publication Date:: 12-2020
Content Type:: Commentary and Analysis
Institution:: The Cato Institute
Abstract:: Policymakers must do something to slow the growing debt burden or else face a major fiscal meltdown. Proposals such as Medicare for All and the Green New Deal would only make the looming fiscal crisis worse. Before COVID-19, the U.S. debt burden was large and on an unsustainable path under reasonable assumptions about economic fundamentals. Standard policy responses, such as higher taxes or lower discretionary spending, could not substantially slow the growth of the U.S. debt burden; only reduced growth in entitlement spending, especially on Medicare, had the potential to avoid eventual fiscal default. COVID-19, the ensuing recession, and the subsequent policy responses have all increased U.S. deficits substantially, potentially altering these conclusions. But these events are likely to be temporary and may be partially offset by other demographic and economic changes related to COVID-19. As a result, the pandemic did not substantially alter the projected path of the U.S. fiscal imbalance. That bit of good news does not alter the grim long‐term U.S. fiscal outlook. The most effective way to slow the growth of the debt burden is to cut entitlement spending substantially.
Topic:: Debt, Tax Systems, Fiscal Policy, COVID-19, and Fiscal Deficit
Political Geography:: North America and United States of America

Author:: Sebastian Edwards
Publication Date:: 10-2019
Content Type:: Journal Article
Journal:: The Cato Journal
Institution:: The Cato Institute
Abstract:: dea has emerged in economic policy circles in the United States: “Modern Monetary Theory” (MMT). The central tenet of this view is that it is possible to use expansive monetary policy—money creation by the central bank (i.e., the Federal Reserve)—to finance large fiscal deficits, and create a “jobs guarantee” program that will ensure full employment and good jobs for everyone. This view is related to Abba Lerner’s (1943) “functional finance” idea, and has become very popular in progressive spheres. According to MMT supporters, this policy would not result in crowding out of private investment, nor would it generate a public debt crisis or inflation outbursts.
Topic:: Debt, Monetary Policy, Populism, Banks, Economic Policy, and Inflation
Political Geography:: Latin America

Author:: Mark A. Calabria
Publication Date:: 09-2014
Content Type:: Working Paper
Institution:: The Cato Institute
Abstract:: Empirical research on the causes of financial crises has grown in recent decades. Early work, such as that by Kaminsky and Reinhart, helped establish the link between asset prices and banking crises. While this initial research focused on equity prices, subsequent research expanded the analysis to include residential property prices. This subsequent research is briefly reviewed here. After establishing the link between residential property prices and banking crises, I discuss the role of various credit policies, both for their impact on property prices and for the stability of the financial system in the face of declining property prices. The role of specific loan characteristics, such as loan-to-value (LTV), will be discussed first, followed by the role of institutional leverage. Policy recommendations conclude.
Topic:: Debt, Global Recession, Financial Crisis, and Governance

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