Public debt

Overview

National legislatures have, from time to time, sought to impose constitutional limits upon government borrowing, often with the objective of limiting government activity, and sometimes in order to avert the danger of default. In some countries, notably the United States, there have even been attempts at "balanced budget amendments" that would forbid all borrowing, even for the purpose of investment. In recent years, the practice of accepting self-imposed limits has also been adopted by governments - which, besides being electorally popular, served the purpose of promoting investor confidence in the integrity of their bonds. Among developing countries, the development of international capital mobility has made the maintenance of investor confidence a policy imperative because panics among investors and anticipations of default by speculators have been a common cause of sovereign default - as explained by Paul Krugman . Paul Krugman explains the International Monetary Fund's apparently perverse interpretation of the Washington Consensus as requiring the avoidance of deficits, even in periods of recession as a confidence-building tactic.