The IMF chief explained why the developed and developing world won't be able to escape the fallout of excessive debt.
in the first quarter is one reason why, the International Monetary Fund's managing director said Monday at the Milken Institute Global Conference.
What does worry her, however, is the growing heap of global debt and how it's going to be repaid. In the US, non-financial debt was at 73% of gross domestic product at the end of last year, near its peak before the financial crisis, according to the Institute of International Finance. "I'm double concerned," Lagarde said during an on-stage interview. She continued:"This excessive debt is going to weigh on us and is going to be a problem."
The first concern Lagarde outlined related to an economic theory that recently gained popularity, fueled by the many years since the Great Recession of low interest rates. It's led people to believe that governments can borrow their way to future growth, she said., which espouses that deficits are not as big a deal as they're made out to be, major economies like the US can borrow with few restraints, and can eventually repay their debt by printing more of their own currency.
"While there might be an element of [MMT] in the US, not all the criteria are in place to make that actually palatable and sustainable," Lagarde said.pace, but may be helpful in a crisis situation when deflation sets in. She added that no country was in a position to deliver value through MMT in a sustainable way.
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