Are rich countries facing a debt crisis?

Take us through what's been happening, um, to public debt in advanced. economies. It's at a really, uh, historical high across advanced. economies. It's higher than it's been at. any time since the Napoleonic War. And. we have a chart, uh, on this. What this. chart shows is, uh, the long historical. series of public debt in advanced. economies going back all the way to. 1800. Uh, and you can see basically three. peaks, uh, after the Napoleonic Wars at. the start of the 19th century, after the. Second World War, and now. And we're.

higher than after the Second World War, and we're around the same level as after. the Napoleonic Wars. Why has this. happened? It's happened, uh, for a few. reasons. One is that in recent years. we've had, or recent decades I should. say, we've had a series of crises, the. global financial crisis, uh, the. COVID-19 pandemic, the energy crisis in. Europe, which has led to sort of step. changes in public debt. But it's also. because politicians just seem addicted. to big deficits. They, uh, they they really struggle at the. moment to balance spending and taxes. And so it continues to mount up, and.

that's got more fundamental political. causes. If we go back to a low rate. world, you can have high debt again. But. what high debt means is that you're. vulnerable, because the higher your. debt, the smaller the increase in. interest rates needed for you to. suddenly have a really bad problem, and. to all of a sudden. face a choice between, uh, economic. crisis or doing quite deep, uh, austerity and quite deep adjustments. A. lot of those charts that we've shown, um, involve forecasts. And, uh, you know,

you might think, well, actually. forecasts can be wrong. But what we've. learned, Henry, is that forecasts are. wrong in a certain direction, and it's. not a comforting one. >> Yes, exactly. That's the other somewhat. alarming thing. That, uh, if you go. back, and this is true across advan-. across advanced economies, if you go. back and look at the debt that was. projected, inevitably the debt ends up. higher. That's partly because these. budget forecasts aren't looking at. whether there's going to be a pandemic, uh, for instance, or or, uh, the. outbreak of war. That's not part of, uh, budget forecast, but it's also because.

in some cases, for example in Britain, there's just been too much optimism. about productivity growth. You have this. overall picture of high debts, high. deficits, pressure on the public. finances. You've got aging populations, which mean more spending on on. healthcare and on pensions. You've got. the pressure, especially in Europe, to. spend more on defense. You've got the. green transition. And it's not just that. debts are high, interest rates since the. pandemic have gone up a lot, so more and. more spending's going on interest as.

well. So you have this upward pressure. on debt. And then you get to the fact. that even if you do write down a. forecast incorporating all those things, you're probably, if history is any. guide, being too optimistic about where. debt is heading. So you put that all. together, and it is quite an alarming. picture.