The countries across the world are facing the crisis of huge national debt, and some are on the brink of default. A few countries in Europe like Portugal and Ireland have already been downgraded to 'JUNK' grade by Moody's. US is also facing the problem with its national debt. Though it is not as high as European countries and is manageable (net debt at 65% of GDP), it has reached the ceiling of $14.3 trillion, which if not revised by the Congress, may lead serious repercussions in US and obviously the world over. I came across the article "Handle with care" in 'The Economist, July 9th-15th, 2011 issue'. The following are the excerpts from the article on how to reduce the national debt.
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Debt can be reduced in several ways. It can be paid off with the help of higher thrift (though not everyone can spend less than they earn at the same time). Its burden can be reduced through higher inflation or faster growth. Or it can be defaulted on. In practice, rich countries seem to be using different combinations of these approaches.
In America, where overall debt levels have fallen fastest, a lot of the reduction in household debt has been thanks to mortgage defaults and write-downs. In Britain, where there have been virtually no mortgage write-downs, relatively high inflation has pushed down the overall debt burden. Spain, in contrast, has seen virtually no reduction in its debt load, despite fiscal austerity, partly because that very austerity has contributed to weak growth and low inflation which have kept down nominal GDP. Tough rules on mortgage have made it hard to reduce unpayable household debt.
In America, where overall debt levels have fallen fastest, a lot of the reduction in household debt has been thanks to mortgage defaults and write-downs. In Britain, where there have been virtually no mortgage write-downs, relatively high inflation has pushed down the overall debt burden. Spain, in contrast, has seen virtually no reduction in its debt load, despite fiscal austerity, partly because that very austerity has contributed to weak growth and low inflation which have kept down nominal GDP. Tough rules on mortgage have made it hard to reduce unpayable household debt.
