Unlike many corporations and households, the U.S. government did not lock in the low interest rates of the last decade by issuing long-dated debt, preferring instead to skew funding towards bills and short-term bonds.
The second route out of the debt trap is to target the primary fiscal surplus, choosing a combination of spending cuts and tax hikes that will stabilise the public debt.
That leaves the third route to debt sustainability – keeping real interest rates low.
But in the short run, it allows a government to tame the debt ratio without fiscal austerity, and even if growth is sluggish.
Governments are indeed stuck in a classic debt trap.
Persons:
Joe Biden, Fumio Kishida, Volodymyr Zelenskiy, Kacper, Everett Dirksen, you’re, Dirksen’s, Stanley Druckenmiller, Joe Biden’s, Peter Thal Larsen, Thomas Shum
Organizations:
Japan's, NATO, REUTERS, Reuters, Congressional, Office, International Monetary Fund, U.S, Treasury, Reuters Graphics Reuters Graphics, Medicaid, Federal, Bank of Japan, Thomson
Locations:
Ukraine, Vilnius, Lithuania, Illinois, U.S, Britain