Does Greece Need More Official Debt Relief? If So, How Much?

Does Greece Need More Official Debt Relief? If So, How Much? Peterson Institute for International Economics. Working Paper, 17-6. Jeromin Zettelmeyer, Eike Kreplin and Ugo Panizza. April 2017

Creditor countries and international organizations continue to disagree whether Greece should receive additional official debt relief, and if so how much. This paper first shows that these disagreements can be attributed to competing assumptions about Greece’s future capacity to repay, particularly about economic growth and the fiscal primary balance. It next evaluates the plausibility of alternative primary balance assumptions using international evidence about fiscal adjustment experiences. It concludes that primary balance paths required to make Greece’s debt sustainable are not plausible and that Greece will therefore require additional debt relief. Finally, the paper shows that the debt relief measures suggested by the Eurogroup in May 2016 (albeit with significant caveats on whether they will in fact be granted or not) could be sufficient to address Greece’s sustainability problem, provided the Eurogroup is prepared to accept both very long maturity extensions on European Financial Stability Facility (EFSF) debt (to 2080 and beyond) and interest deferrals that could lead to a large rise in EFSF exposure to Greece before it begins to decline. If the Eurogroup wishes to avoid the latter, it will become necessary to either (1) extend the scope of the debt restructuring, (2) lower the interest rates charged by the EFSF significantly below current predictions, or (3) extend European Stability Mechanism (ESM) financing beyond 2018 and delay Greece’s return to capital markets for a protracted period. [Note: contains copyrighted material].

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The United States as a Net Debtor Nation: Overview of the International Investment Position

The United States as a Net Debtor Nation: Overview of the International Investment Position. Congressional Research Service, Library of Congress. James K. Jackson. October 7, 2016

The international investment position of the United States is an annual measure of the assets Americans own abroad and the assets foreigners own in the United States. The net position, or the difference between the two, sometimes is referred to as a measure of U.S. international indebtedness. This designation is not strictly correct, because the net international investment position reveals the difference between the total assets Americans own abroad and the total amount of assets foreigners own in the United States. These assets generate flows of capital into and out of the economy that have important implications for the value of the dollar in international exchange markets. Some Members of Congress and some in the public have expressed concerns about the U.S. net international investment position because of the role foreign investors are playing in U.S. capital markets and the potential for large outflows of income and services payments. Some observers also argue that the U.S. reliance on foreign capital inflows places the economy in a vulnerable position.

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Argentina Default Flashes Warning to Emerging Markets

Argentina Default Flashes Warning to Emerging Markets. YaleGlobal. Will Hickey. September 9, 2014.

Argentina, among the world’s top 25 economies, is trying to seek relief with bondholders and avoid being locked out of international credit markets. A U.S. judge has sided with a minority of bondholders led by a U.S. billionaire, blocking payments to the 90 percent who agreed to restructuring. For now, despite the judge’s ruling that all or none of the bondholders be paid, Argentina explores debt swaps and a separate account for the holdouts. The case highlights the challenges for emerging economies, explains Will Hickey. Advanced nations push ideas that require complex financing vehicles, developing nations have few financing alternatives, priorities change over the life of a bond, and investments are subject to speculation. As trouble emerges, a few wealthy bondholders can pursue highly complex legal cases. So far, U.S. courts have ruled that speculators who purchase debt for pennies can pursue full payment. If not careful, Hickey concludes, the emerging economies could be trapped into never-ending debt. [Note: contains copyrighted material].

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Debt in America

Debt in America. Urban Institute. Carolinge Ratcliffe et al. July 29, 2014.

Debt can be constructive, allowing people to build equity in homes or finance education, but it can also burden families into the future. Total debt is driven by mortgage debt; both are highly concentrated in high-cost housing markets, mostly along the coasts. Among Americans with a credit file, average total debt was $53,850 in 2013, but was substantially higher for people with a mortgage ($209,768) than people without a mortgage ($11,592). Non-mortgage debt, in contrast, is more spatially dispersed. It ranges from a high of $14,532 in the East South Central division to a low of $17,883 in New England. [Note: contains copyrighted material].

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Young Adults, Student Debt and Economic Well-Being

Young Adults, Student Debt and Economic Well-Being. Pew Research Social & Demographic Trends. Richard Fry. May 14, 2014.

Student debt burdens are weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation, according to the analysis of government data. About four-in-ten U.S. households (37%) headed by an adult younger than 40 currently have some student debt–the highest share on record, with the median outstanding student debt load standing at about $13,000. [Note: contains copyrighted material].

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Debt Ceiling Redux?

Debt Ceiling Redux? YaleGlobal. James Leitner and Ian Shapiro. February 20, 2014.

U.S. Congress raised the artificial debt ceiling to pay bills without a fuss, but the move may galvanize extremists who want to slow government spending, explain James Leitner. Economists around the globe agree the United States should slow spending and reduce debt, but oppose the crude approach that would destabilize the global economy and hike interest rates. According to the authors, the law may be unconstitutional because it forces government to prioritize spending already approved by Congress, a not-so-transparent backdoor way to eliminate popular programs opposed by conservatives. [Note: contains copyrighted material].

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The Debt Limit Since 2011

The Debt Limit Since 2011. Congressional Research Service, Library of Congress. D. Andrew Austin. February 18, 2014.

Total federal debt can increase in two ways. First, through debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, through debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it.

[PDF format, 23 pages, 417.67 KB].