Countries' debt piles up during the coronavirus pandemic - what does that mean?

Many experts believe that public debt is a good way to finance an economic recovery.

This borrowing has been further supported and encouraged by the efforts of central banks since the financial crisis.

America's public debt has recently reached its highest level since World War II, but an interesting thing has happened: the public doesn't seem to mind.

The U.S. debt burden has continued to rise, far exceeding the size of the country’s economy, as measures have been taken to cushion the impact of the coronavirus outbreak. But the U.S. is not alone—governments around the world are borrowing heavily to fight the coronavirus. While such an economic move isn't necessarily surprising, the weak reaction from conservative economists is.

The pandemic appears to be further reshaping perceptions of massive public debt. Those who once panicked about it now seem to be okay with it too - as long as funds are used wisely and interest remains relatively low.

As a result, even countries like the UK have reached record levels of debt, countries like South Africa have had to enact potentially destabilizing public sector wage freezes, and even advanced economies' public debt versus GDP The ratio is expected to hit 140%, and many experts are sticking to their advice - keep borrowing!

It was not long ago that it was realized that a country's public debt burden should be much smaller than the size of its economy. On the eve of the global financial crisis, the United States had public debt at around 60% of GDP, while the EU's treaty treaty effectively stipulated that public debt could only be 60% of GDP. But like other things once taken for granted, the coronavirus pandemic has, at least temporarily, overshadowed EU debt guidelines as policymakers scramble to come up with economic support packages.

In some ways, the willingness to borrow more is a "trick" honed since the financial crisis. As they did at the time, central banks simply printed the money needed to buy a lot of government debt and inject liquidity into the economy. Need to widen the deficit now to fund the COVID-19 economic support package? As one economist put it - "Print me money to death".

Long before the Covid-19 pandemic, many experts dismissed a single-minded focus on curbing public debt as "foolishness", noting that World War II debt (probably a reasonable expense during the crisis) for defeating the Nazis has Not yet fully paid.

Still, rising debt levels could raise concerns about potential bankruptcy and economic devastation. And, the way the economy loops, which lets central banks fund public spending, raises concerns about inflation. In post-World War I Germany, hyperinflation crippled even restaurant waiters, who had to report new menu prices every half hour. Today, however, concerns about inflation appear to have largely disappeared.

Governments have been borrowing from a wide range of investors, including pension funds, but central banks have been their most reliable backers — the Federal Reserve buys $80 billion in U.S. Treasuries every month.

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