From Goldman Sachs research, this is Alison Nathan. Welcome to Top of Mind, a podcast that explores

macroeconomic issues on the minds of our clients. In this episode, we're focusing on the recent

surge of government deficits and debt levels around the world as governments attempt to ease the impact of the coronavirus pandemic.

To give you a sense of just how large that debt could become, we expect debt to GDP ratios in developed markets to match levels last seen during World War II.

And in emerging markets,

we expect them to rise to their highest levels ever. This surge in public debt raises a lot of questions. Who will finance it? Will it force a market repricing or even severe market dislocations

where debt dynamics look particularly unsustainable. Even if material market disruptions

don't occur, will such indebtedness lead to a growth or inflation problem down the road,

and would greater use of negative rates, which seems to be the topic de jure for central banks,

help avoid any of these risks? At the same time, while public debt concerns are a key focus,

whether private sector debt issues lead to a wave of corporate defaults and bankruptcies

that could derail the economic recovery is also a big worry. Given all of these questions and

concerns, how disruptive the recent dramatic shift in debt dynamics might be for markets

and the economy is clearly top of mind. To help answer these questions, we turn to Kenneth

Rogoff, Harvard professor and former chief economist at the IMF, as well as our chief economist

Jan Hotsias. Both agree that the sharp rise in deficits and debt levels to support growth

is absolutely warranted today, given the magnitude of the economic challenges we're facing.

To start, here's Rogaugh's take on that.

Obviously, governments have taken many unprecedented steps to support their economies throughout this crisis,

and we have seen a very large

increase in public debt as a result. Do you think that this spending and this increasing debt

is appropriate at this time? Absolutely. We're looking at the worst natural catastrophe in generations,

...