Why the Hoped-for Solution to Out-of-Control Government Debts Won’t Work This Time

Why the Hoped-for Solution to Out-of-Control Government Debts Won’t Work This Time

“Rapid growth is no longer possible” and “inflation is not going to be tolerated” in societies with slow wage growth: head of central bank of Singapore. It has been said out loud.

By Wolf Richter for WOLF STREET.

The solution now to the enormously ballooning debts in developed economies: Firing up consumer price inflation and let it run hot, according to the newest dogma trotted out incessantly by the Fed and other central banks, and hope that rapid economic growth will take care of the rest.

The US federal government debt alone has ballooned by $3.5 trillion in just eight months, and by $4.2 trillion in 12 months, to a breath-taking $26.7 trillion today:

Rising inflation and high economic growth worked during the decades after the Second World War in bringing down debt levels in highly indebted countries, such as the US, but it won’t work this time, said Tharman Shanmugaratnam, a Senior Minister in the Singapore Cabinet, Chairman of the Monetary Authority of Singapore (Singapore’s central bank), and Deputy Chairman of the Government of Singapore Investment Corporation (Singapore’s sovereign wealth fund). He was speaking at the opening day of the virtual Singapore Summit.

“I think the big issue in the next decade is how to ensure that debts are sustainable,” he said. “First, it’s obvious that you can’t just keep increasing your debts. I don’t believe that the new high levels of debt that many countries are now moving towards are going to be sustainable without imposing a significant cost on growth as well as on equity within their societies.”

The question of “equity” is how these costs are being distributed over society. In other words, who’s going to get slammed by those costs, and who benefits.

“It’s not like the post-war period,” he said. “In fact, after the Second World War, many of the advanced countries started at very high levels of debt – the United States, the UK, many European countries – but they brought it down dramatically over 30 years. How did they do it? Rapid growth and inflation. And both of those are not possible anymore.”

“Rapid growth is no longer possible; these are now aging societies; productivity growth is much lower than before,” he said.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.