Are debt reduction and economic growth compatible? Many believe that this is a valid concern for investors today. At the last minute the US congress appears ready to pass legislation temporarily increasing the debt ceiling. This will be coupled with substantial reductions in social and military programs. The staggering multi-trillion dollar US debt has been a drain on the US economy and a threat to economic growth. The prospect of a debt reduction is encouraging for US investors. However, an abrupt decrease in national cash flow could lead to economic contraction. Here is where the concern about debt reduction and economic growth lies for many investors. Fundamental analysis of the situation starts with defense stocks as the president has promised troop withdrawals from Iraq and Afghanistan. No new military involvement is on the immediate horizon. That will likely mean fewer bullets and, probably, a reduction in manpower. It may also mean a reduction in research and development for new weapons systems as the nation attends to concerns at home. Stocks of defense contractors will likely feel the pinch of reduced military appropriations. The reductions in military spending will likely also have a ripple effect throughout the economy. Less money spend on military salaries or on paying engineers to develop high tech weapons means reduced spending throughout the economy. In this regard there will be an inverse relationship between debt reduction and economic growth. Social …
25-Aug-2011
Debt Reduction and Economic Growth
Category : Debt Reduction
03-Jul-2010
Product DescriptionFor dozens of developing countries, the financial upheavals of the 1980s have set back economic development by a decade or more. Poverty in those countries has intensified as they struggle under the burden of an enormous external debt. In 1988, more than six years after the onset of the crisis, almost all the debtor countries were still unable to borrow in the international capital markets on normal terms. Moreover, the world financial system has been disrupted by the prospect of widespread defaults on those debts. Because of the urgency of the present crisis, and because similar crises have recurred intermittently for at least 175 years, it is important to understand the fundamental features of the international macroeconomy and global financial markets that have contributed to this repeated instability. This project on developing country debt, undertaken by the National Bureau of Economic Research, provides a detailed analysis of the ongoing developing country debt crisis. The project focuses on the middle-income developing countries, particularly those in Latin America and East Asia, although many lessons of the study should apply as well to other, poorer debtor countries. The project analyzes the crisis from two perspectives, that of the international financial system as a whole (volume 1) and that of individual debtor countries (volumes 2 and 3). This third volume contains lengthy and detailed case studies of four very different Asian countries—Turkey, Indonesia, Korea, and the Philippines.