A global debt crisis is on the horizon. Across the world, governments are spending an ever-larger share of their budgets on interest payments, leaving them little room to invest in economic growth or take action on climate change. This is a dangerous situation.
The global financial crisis of 2007-2008 caused massive economic disruption, and millions lost their jobs or homes. Governments intervened in several ways to help cushion the blow, including by lowering interest rates to stimulate demand, guaranteeing deposits and bank bonds, and purchasing ownership stakes in banks and other financial firms to restore confidence. But while the policy response avoided a global depression, many economies took much longer to recover than those that had not been hit by the crisis.
Overlapping crises exacerbated these problems, but often poor policy choices were the root cause. Countries borrowed too much, often at high interest rates (up to six times higher than those in the United States). Some of the proceeds were spent on armaments, failed or inappropriate large scale development projects, and private investments benefiting the elite.
While Americans may wonder why the fate of Suriname or Sri Lanka should matter to them, they might be surprised to learn that these countries are using every dollar they earn to pay off their debts and are unable to buy American goods and services. As a result, America is a net contributor to the global debt crisis, and it should lead the charge to address it.