Happy New Year? Not according to the IMF.

Here's a thoroughly scary thought to start the new year.  According to a report from the IMF, debt burdens in developed countries are now at their highest level in 200 years, and extreme measures -- restructuring, a tax on savers or (whisper it not) higher inflation will soon be needed to alleviate the burden.

The report is authored by Kenneth Rogoff and Carmen Reinhart of Harvard University.  You may recall that they triggered a noisy academic argument last year when they published a paper that appeared to show that countries that allowed their debt/GDP ratio to rise beyond 90% inevitably endured lower growth rates than more fiscally-disciplined countries.  There were suggestions, which were of course denied, that Rogoff and Reinhart had been rather selective in the data they used to prove their thesis.  A couple of years before that, Rogoff published a paper arguing that a "modest" increase in inflation, say to about 4 percent, would help make debt burdens more manageable over time.  So there's nothing exactly new in the underlying arguments of this latest report.

One thing that is a bit striking, however, is the comparison that is made with debt writeoffs during the Dirty Thirties.  It's not clear that this is a valid comparison, inasmuch as the many of the writeoffs all those decades ago involved the United States forgiving post-Great War loans it had made to the European combatants.  It's difficult in the extreme to imagine that something similar could be arranged today, when so much sovereign debt is owed to private lenders.  It's unlikely that the bond vigilantes are as generous and far-sighted as FDR was.  And as for the US departure from the gold standard, which effectively imposed a 15% haircut on the country's creditors, well, no comparable measure is even available in today's world of floating exchange rates.  

Besides, there's a whole other level to the problem now.  Private individuals are now much more deeply in debt than they were in the Thirties, when credit cards and personal lines of credit and equity withdrawal loans were simply unheard-of.  Here in Canada, for example, the personal debt/disposable income ratio is in excess of 160%, an all-time high.  It's hard to be surprised at that when the central bank keeps assuring everyone that it won't be raising interest rates for a long time to come.

Rogoff and Reinhart argue that taking extraordinary steps ("financial repression") to deal with the debt burden will be better in the long run than the current policy of just muddling through.  That may well be true for public debt, but the problem, in most countries, is a lot broader than that.