01-May (The American Enterprise Institute) — Economists Carmen Reinhart, Vincent R. Reinhart, and Kenneth Rogoff (from here on out referred to as R3) have a new study out looking at the economic impact of high debt levels:
– We identify 26 episodes of public debt overhang–where debt to GDP ratios exceed 90% of GDP–since 1800. We find that in 23 of these 26 episodes, individual countries experienced lower growth than the average of other years. Across all 26 episodes, growth is lower by an average of 1.2%.
– If this effect sounds modest, consider that the average duration of debt overhang episodes was 23 years. In 11 of the 26 high debt overhang episodes, real interest rates were the same or lower than in other periods.
PG View: R3 warn that if we wait to reduce our debt load until higher rates signal danger, it may be too late…