In a stark prediction, economist Arthur Laffer has issued a warning about an impending debt crisis that could haunt the global economy over the next ten years. Laffer, the President of investment and wealth advisory firm Laffer Tengler Investments, highlighted the record-breaking global debt, which surged to a staggering $307.4 trillion in September 2023.
The surge in debt is not confined to high-income countries alone but also encompasses emerging markets, resulting in a $100 trillion increase in debt over the past decade. Laffer attributed this escalation, in part, to a high-interest rate environment.
“I predict that the next 10 years will be the Decade of Debt. Debt globally is coming to a head. It will not end well,” Laffer cautioned in an interview with CNBC.
According to data from the Institute of International Finance, the debt-to-GDP ratio has soared to 336%, compared to 110% for advanced economies and 35% for emerging economies in 2012. This worrying trend suggests a precarious financial landscape fraught with challenges.
To meet debt obligations, approximately 100 countries may have to slash spending on critical social infrastructure, including healthcare, education, and social protection. Laffer emphasized that failure to address fiscal issues could result in dire consequences, with some countries facing a slow fiscal demise while others risk bankruptcy.
Mature markets such as the U.S., U.K., Japan, and France, along with emerging economies like China, India, and Brazil, are grappling with substantial debt burdens. Laffer underscored the urgency of addressing this mounting debt, especially as aging populations and dwindling workforces exacerbate repayment challenges.
“The are two main ways to cover this issue: raise taxes or grow your economy faster than debt is piling up,” Laffer remarked.
Laffer’s warning coincides with the U.S. Federal Reserve’s decision to maintain interest rates in January, dashing hopes of a rate cut in March. As the specter of a global debt crisis looms large, policymakers face the daunting task of navigating through treacherous fiscal terrain to avert a catastrophic economic meltdown.