Original title: Global Treasury bond scale is high: how high is national debt?
Zhao Zhu Zhu
Debt scale is at a high level and debt crisis is two different things. How high is the country's debt? The answer is, look at the reputation.
Recently, IMF (International Monetary Fund) released the latest financial monitoring report, focusing on the risk of global government debt expansion.
IMF's data show that global debt is at a record high. On average, debt in developed economies has reached 106% of GDP, the highest level since World War II. In emerging and middle income economies, the ratio of debt to GDP averaged 50%, reaching the level of the debt crisis in 1980s.
Is there any reason for IMF's warning? Of course, because the high level of government debt is certainly not conducive to long-term growth, it restricts the country's investment in infrastructure, education and medical care in the critical areas of growth.
But it can be said, no reason. Is it "high" because of how high the debt is? It's hard to tell. In the Maastricht treaty, the EU stipulates that the proportion of government debt can not exceed 60% of GDP, but Japan has reached 240%. Can Japan say that Japan is on the brink of the debt crisis?
Debt always seems to give people a negative feeling. In fact, debt, especially national debt, is a very important institutional innovation in human history.
In sixteenth Century, the emperor of Habsburg, Austria, used the credit of the parliament of the Federal Republic of Holland to issue bonds to raise funds for the law war. The reason is very simple. The credit of the emperor is not high, and the interest that he borrows money is too heavy. In the view of creditors, the emperor and the king will die one day. It is also uncertain whether the debts of the old king will be recognized by the new king. Parliament is a permanent institution whose credibility is higher than that of the king.
In order to raise large sums of money at low interest, the Habsburg emperor handed over the tax power to repay the principal and interest to the Holland Parliament. In 1542, the new tax categories and the authority to decide on financial expenditure were also handed over to the parliament. The Federal Parliament of Holland will issue bonds for investors to buy freely in the form of market transactions based on future tax revenues. This is the initial treasury bond.
The Habsburg emperor made a systematic innovation by unwittingly transforming the emperor's "private debt" into "public debt" for the market. After the glorious revolution of England in 1688, William from Holland inherited the throne of England, and William brought the system into Britain.
Britain carried it forward, but its old enemy, France, was repeatedly beset by financial crisis. Before the French Revolution in 1789, because of the frequent breach of contract by the king of France, investors demanded higher interest on the debts of the French king. In the latter half of the eighteenth Century, the average interest rate of the British Treasury bonds was 3.7%, while the French credit reached the best 6.1%.
Behind the war is the finance. High interest rates mean that France will pay higher financial costs in the war. Due to the good reputation of Britain, during the Napoleon war, a large amount of French funds went to the British hands of the belligerent countries.
Therefore, Napoleon's failure in the battle of Waterloo was no accident. Compared with France, the market is more confident that Britain will win the war.
The competition among countries is largely reflected in the competition for international capital. Which country can attract fresh capital on a large scale, low cost and sustainable development, which countries will gain competitive advantage. The efficient national debt system is the embodiment of the financing ability of a country and an important factor determining the rise and fall of a country.
In the final analysis, the scale of debt is at a high level and the debt crisis is still two different things. Whether there is a crisis or not depends on whether the debt is really high.
Back to the first question, how high is the state's debt? The answer is, look at the reputation.
Zhao Ke (Associate Professor of International Strategic Research Institute, CPC Central Party School)
Editor in responsibility: Zhang Yan
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