In last week’s column (see here), I discussed the importance of public debt as an asset that enables wealth to be transferred to a date in the future, while restricting risk, along with its ability to effectively absorb economic shocks. I also noted that I was less concerned about public debt than private debt, particularly household debt.
The major difference between public debt and household debt is that a credible State issuer can issue debt with sometimes very long maturities, which households cannot do, so they do not have the same flexibility to adapt to shocks. Continue reading
Public debt is evil. This is the kind of statement we often see in the press, but it is wrong. If we are going to be concerned about excessive debt levels, we should worry more about the private sector’s debt: it is this private debt, and in particular household debt, that lay at the root of the 2007 crisis, and not public debt that had already been cut back before the crisis. Ten years later, private debt remains high, especially in Europe, and this restricts private sector players’ ability to adjust.
But before we look at private debt, let’s take a look at the issue of public debt, where we can make a number of observations: Continue reading