Debt trap danger is just beginning to be understood

Two events are alerting us to the potential for government debt funding failures

There have been two events in the last week which point to officials aware of government debt financing problems ahead. First, Agustin Carstens, General Manager of the Bank for International Settlements warned governments that interest rates will not return to their recent lows “soon”. And misgivings about the ability of the UK government to fund itself have now emerged, influencing the government’s debt programme.

In his lecture at Goethe University in Frankfurt, Carstens politely said what I’ve been trying to warn more bluntly. He forewarned that because interest rates will not return to recent lows in the foreseeable future, continued heavy borrowing by governments risks plunging economies into crisis “unless public finances are urgently improved”…”Financial markets can remain calm in the face of large imbalances until suddenly, one day, they no longer are. It is imperative for fiscal authorities to curb the relentless rise in public debt.”