The Global Debt Bomb

Summary of the article

In the last two years, most of the countries across the world took enormous amount of debts in the form of a loan trying to help their economy from the global meltdown. This debt in the form of loan, bonds, etc. are taken to bail out nationalized banks and some of the private banks to save them from disaster and to foster growth in the longer run. But this strategy has actually backfired for most of the nations and the problem that they were facing worsened their debt problems. For nearly all the countries the debt to GDP ratio has increased to unmanageable figure. The tipping point as suggested by most of the experts is 90%. But some experts believe that tipping point is actually quite less than this figure for some countries. The biggest problem for the nations is “How all this debt will be paid off”. This is one of the most unanswered question. To pay the debt an economy needs to grow at a pace such that the income is able to offset the expenses incurred in the year and the there is sufficient balance of payment that remains with them to allow the central government to pay off the debt. But since the level of debt is very high, the growth rate might be an issue and this in turn will hamper earnings. Hence, this becomes a vicious circle for most of the economies. This might lead to defaults in the payments of the interest part or in the principal payments. We have seen some of the economies on the verge of the sovereign debt defaults including Greece, Ukraine, and Portugal. The worst part is that sovereign defaults can have a cascading effect, pulling other nations into default. But no one has predicted such a scenario as yet.

Brief Analysis/ Critique of the article

For Europe, it all started in 1999, when many nations in Europe formed an alliance to form European Union. They opted to have a single currency system, allowed each nation that are members to have nearly same political and monetary policies. That is how some nations...