Research

In a report on global financial stability, the International Monetary Fund sounded a warning on what could very well cause the next financial crisis: national debt. They note that national debts of major industrial countries, including the United States, are approaching levels not seen since World War II. And if nothing is done to control spending then the world could face higher interest rates, restricted credit supplies and a cascading series of bank failures that could precipitate another global crisis.

The crisis has led to a deteriorating trajectory for debt burdens and sharply higher sovereign risks. With markets less willing to support leverage—be it on bank or sovereign balance sheets—and with liquidity being withdrawn as part of policy exits, new financial stability risks have surfaced. .  . The subsequent transmission of sovereign risks to local banking systems and feedback through the real economy threatens to undermine global financial stability.

One only needs to look at Greece’s current debt crisis to see how one nation’s failure can threaten the broader economy. Now imagine the effect on global finance if the U.S., the world’s largest economy, were to find itself in a similar position. Already Moody’s has warned that our AAA credit rating is at risk of a downgrade (it happens) and the CBO has reported that the President’s binge spending will cause the national debt to approach 90% of GDP by 2020. Rather than leading on this issue, President Obama has placed our nation at risk by pursuing a policy of reckless spending that threatens the prospects of our economic recovery.