Debt traps are being sprung everywhere
The threat to government finances from rising bond yields is becoming apparent to investors. They are crashing the entire dollar-based currency system starting with the yen.
The political pressure on central banks has always been to suppress interest rates. Inevitably, this has led to a compounding explosion of government debt and a proliferation of zombie corporations. Thanks to the US ensuring that Hormuz remains bottled up and now the Bab el-Mandab strait as well, G7 nations face a severe slump in business activity crashing their government finances.
Furthermore, the Keynesian playbook is for governments to expand credit in addition, to prevent economic slumps and recessions. Coupled with domestic political priorities G7 central banks will be forced to intensify suppression of interest rates and bond yields. It is leading all these nations into deeper debt traps.
So, what is a debt trap? At the sovereign level, here is a definition:
