Investment Institute

Dealing with the debt burden

In this series, we carefully examine a number of dimensions around the potential medium-term transformation brought about by COVID-19. We don’t just consider the extremities of what may happen, but also what is likely to happen. The pieces are interdisciplinary, using history, economics, political and social analysis, to make their points.

2020 M04 24

22 minutes

In this series, we carefully examine a number of dimensions around the potential medium-term transformation brought about by COVID-19. We don’t just consider the extremities of what may happen, but also what is likely to happen. The pieces are interdisciplinary, using history, economics, political and social analysis, to make their points.

The first part of a new series by the Ninety One Investment Institute

Self-filmed at home by our authors, during the Great Shutdown.

The fast view:

  • The unprecedented policy action from governments globally to cushion the virus impact has led to significant extra debt being added to already high levels.
  • The use of government debt in times of stress is not new, having been used extensively during times of war.
  • If history repeats itself and households and corporations reduce consumption and increase savings, as they did in 2008, then governments will be forced to take up the slack – adding more to the debt burden.
  • This debt will need to be repaid eventually. Money invested in government debt is diverting resources from other more productive activities. It will burden generations to come unless something is done.
  • Most options to reduce this burden are unlikely, unpopular or unrealistic. But we believe financial repression – the capping of bond yields via central bank yield curve control, regulations that require the financial sector to hold more government bonds and keeping real yields negative – is the most likely outcome.
  • Understanding why this is the case is a crucial part of our Investment Institute research, which we explore in this paper.

 

Download the PDF

 

Verfasst von

Russell Silberston

Investment Strategist – Macro-Economic and Policy Research

Hendrik du Toit | Our role in the fight against COVID-19

Hendrik du Toit | Our role in the fight against COVID-19 ...

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

All rights reserved. Issued by Ninety One, issued April 2020.