Summary:
· Sovereign debts have increased sharply since the eighties;
· Global monetary stimulus has created a low interest rate environment, but public authorities have failed to benefit from cheap money to reduce debt;
· Relying solely on monetary easing to mitigate sovereign risk is too dangerous, especially given the weakness of economic growth.
Government debts in most developed countries have increased markedly since the 1980s. Ultra-expansionary monetary policies have dragged down sovereign interest rates below growth rates, preventing any fiscal solvency [1] issues in the short run. However, monetary easing failed to stimulate growth significantly, and most countries have not benefited from the low interest rate environment to generate budget surpluses. The sharp accumulation of government debt cannot continue indefinitely. Do not be surprised to see global growth dampened by debt in the coming years…
1- Government debt sustainability
2- Debt ratios at historically high levels
3- Perverse effects of ultra-accommodative monetary policies
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