Abstract for: The Current Debt Crisis - A System Dynamics Analysis

The near meltdown of the world financial system led in almost all OECD countries to a sharp economic downswing. Even though there are signs for a recovery the political leaders have to cope with another problem: the steep increase in national debt. The increase is due to the automatic stabilizers (decline in tax revenues increase in transfers) but also to discretionary spending in order to stimulate the economy. Public, politicians and media talk of a debt crisis because they have doubts that an upswing will lead to a symmetric decrease in national debt. This paper analyzes the dynamics of government debt and demonstrates that economic shocks may have, in fact, long lasting effects with respect to the debt process.