Question

WHY ARE WE TALKING ABOUT A DEBT CRISIS IN THE WORLD? (1-page double spacing minimum)

RESEARCH THIS IN REFERENCE TO THE FOLLOWING:

1. TO THE NATIONAL, PRIVATE AND CORPORATE DEBT IN MANY COUNTRIES
2. TO THE CENTRAL BANK MONETARY POLICY

Answer 1

As we all know, battling the pandemic is an arduos job both physically and financially. Many under-developed and developing countries have already received a lot of loans from monetary organizations and are in a sort of bother to repay them, thus leading to the debt crisis. In economic terms, if the government has expenditures exceeding tax revenues for quite some time, we say that the country has entered a debt crisis. Even a massive public debt qualifies to be a debt crisis. Ex. The 2007 financial crisis.

A. In reference to post financial crisis 2007, I would like to bring in some intuition on this section. In advanced economies it's observed that the corporate debts have decreased post 2010. On the other hand, the national debts have increased to 104 percent of global GDP. And as expected, the corporate debt crisis has risen unprecedentedly to 26 percent of GDP. Now you might have got a rough idea on the magnitude of debt crisis.

B. In this section, I'll take inference from the United States monetary policy. Monetary policy affects domestic consumption, production, and inflation. In general, the economists' point of view is that these are also affected by the risk of default, that is, a debt in simple terms. This is a bridge of understanding of interaction between fiscal and monetary policy.  A central bank that targets inflation is concerned with the consumption levels, production, and employment in their country. If rising debt threatens economic growth but gives rise to inflation, central bankers face feel the heat for their monetary policy.

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