Is There a Government Debt Problem?

Federal debt in most industrialized countries has increased quite a bit since 2008. Is this a problem going forward? Lets dig into this a bit…

Lets start with the US debt-to-GDP ratio 1960–2019:

Obviously, it exploded due to the last financial crisis, which decreased tax income and increased government spending. Throw in the general detaxation of the Trump Administration plus increases in spending, and indeed you get a lot of debt due to repeated deficits (deficits are the annual shortfall, while debt is the accumulation of deficits over the years).

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No Inflation No Problem

When you read market commentators and “analysts”, they keep talking about “the debt” and “credit”: government debt, corporate debt, household debt, etc. They then say that “if interest rates increase, it will trigger defaults and rollover problems and more fiscal pressure”… and that would be the “Crisis of All Crises”… and they’re right. Except that in their logic, they have an important hypothesis: that interest rates will indeed increase! It’s not that simple!

The issue is that their fears of rising interest rates rest on the cause of rising interest rates, which is rising inflation… yet, here is the catch: there is NO inflation!

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