What are the signs of a debt crisis within the G10 nations?
Rethinking Debt Crises in Developed Nations
Many believe that advanced economies are largely shielded from debt crises due to the strong credibility of their monetary policies. This confidence stems from the idea that central banks can intervene—by creating money and purchasing government bonds—if borrowing costs rise sharply, all without unsettling inflation expectations.
However, I challenge this perspective for two main reasons. Firstly, when government debt reaches elevated levels, negative economic shocks can trigger sudden increases in yields. This happens because investors, acting logically, foresee expanding deficits and mounting debt. If central banks consistently intervene to suppress yields during such downturns, it eliminates the motivation for governments to...
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