Primer on fiscal/sovereign debt crisis

CBO has released this excellent primer on fiscal/sovereign debt crisis. It covers following issues:

  • How does a fiscal crisis arise? –
  • What is its impact on economy?
  • What are the options for policymakers if the crisis hits  US economy?
  • There are case studies of Argentina, Ireland and Greece

There is not much to discuss. It is just a quick read on the basics.


I just forgot to add this. There is an interesting insight from the country case studies:

a review of fiscal crises in Argentina, Ireland, and Greece in the past decade reveals instructive common features and differences. For all three countries, the crises occurred abruptly and during recessions. However, the crises occurred at different levels of government debt relative to GDP, showing that the tipping point for a crisis does not depend solely on the debt-to-GDP ratio; the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy are also important. All three of those crises illustrate the difficulty of formulating effective policy responses once investors lose confidence in a government.

So Argentina suffered from the crisis when debt was 50% of GDP. Ireland debt was 20% of GDP till 2007 but then grew rapidly. So investors were weary of this sudden increase. In 2008, Greece debt was around 110% of GDP and was one case where debt levels were really high and it was only a matter of time.


One Response to “Primer on fiscal/sovereign debt crisis”

  1. zezinho Says:




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