Debt ‐ Is It Still A Problem?

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Abstract
The argument that once the public sector ceases to be a net borrower levels of external debt should cease to be a policy concern, overlooks two key points. First, private savings behaviour may be distorted due to government intervention, leading to excessive drawing on overseas savings. Second, given this, a potential externality exists to justify government intervention to prevent overseas borrowing reaching the point where a financial crisis and loss of confidence occur, leading to a recession or an extended period of stagnation, or both. The Australian situation fits this scenario.

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