The International Monetary Fund warns that developed countries must cut back spending to sustain long-term economic growth, which means precious little in the short term. “In a speech at the China Development Forum in Beijing, John Lipsky, the deputy managing director of the I.M.F., offered a grim prognosis for the world’s wealthiest nations, which find themselves at a level of indebtedness not seen since the aftermath of World War II. For the United States, ‘a higher public savings rate will be required to ensure long-term fiscal sustainability,’ Mr. Lipsky said. Mr. Lipsky said the average ratio of debt to gross domestic product in advanced economies is expected this year to reach the level prevailing in 1950. Even assuming that fiscal stimulus programs are withdrawn in the next few years, that ratio is projected to rise to 110 percent by the end of 2014, from 75 percent at the end of 2007. Indeed, the ratio is expected to be close to or exceed 100 percent for all Group of 7 countries, except Canada and Germany, by 2014. ‘Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,’ Mr. Lipsky said.”
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