The International Monetary Fund (IMF) has expressed concerns regarding the current trajectory of the global economy, indicating a potential for slower growth and an increase in debt levels. The IMF emphasizes that governments need to take action to reduce their debt and prepare for the next economic shock, which could come sooner than expected. Their message is clear: changes are necessary; otherwise, we could face serious problems.

The IMF predicts that if spending continues the way it is now, the United States’ debt could reach 198% of its GDP by 2050, even without a recession. Other major economies in the G-7 are also in danger, with their debt expected to rise to 188%, and globally, debt could grow to 122%. Germany is the only country expected to lower its debt, possibly cutting it down from 63.5% to 42%. Japan, meanwhile, is expected to reach a debt level of 329%, which is incredibly high. The IMF also forecasts that global debt could reach $100 trillion by 2024, with the US and China being the main drivers of this increase.

The problem is that governments rarely follow the IMF’s advice, especially when it involves cutting spending. They are quick to listen when the IMF suggests spending more to boost the economy, but when it comes to saving money or reducing debt, many governments tune out.

A lot of the current debt issue can be traced back to the IMF’s recommendations during the pandemic in 2020. In their annual report, the IMF encouraged governments to spend whatever it took to keep their economies afloat during the crisis, but also to keep good records of how the money was spent. Governments took the “spend whatever it takes” part to heart but ignored the rest. As a result, many countries kept their emergency spending programs going long after the crisis eased, increasing their deficits even as the economy began to recover.

The United States, in particular, is seeing a big rise in debt. The IMF forecasts that US public debt will rise by nearly three percentage points annually over the next five years despite economic growth and job creation. This raises concerns about how sustainable the country’s current fiscal policies really are.

Despite the IMF’s warnings, it’s likely that governments will continue to ignore the advice. Governments generally prefer to increase spending rather than cut it, especially when things seem to be going well. This is even more likely when central banks reduce interest rates, making it easier and cheaper for governments to borrow money.

In the eurozone, some governments have revised previous GDP figures, making their economies appear stronger than they truly are. This enables them to justify increased spending and incur more debt.

The IMF recently warned that rising debt levels and uncertainty about the future could lead to a financial crisis. The IMF hopes that governments will act responsibly and save money for protection. However, many governments are still spending freely. After the pandemic, many governments continue to believe they can fix their problems by raising taxes on the wealthy and large corporations. But history shows that this plan won’t bring in nearly enough money to solve the problem.

Governments are also counting on central banks to step in with emergency measures when things get tough. However, this approach may harm the middle class, leading to slower economic growth, lower wages, and a decrease in the value of people’s money over time.

Ignoring IMF’s warnings could lead to slower growth, lower wages, and less purchasing power in the future. It is crucial for governments to act quickly to solve these problems, but it is unclear if they will do so.