When Is Government Debt Risky?
A government that does not tax sufficiently to cover its spending will eventually run into all manner of debt-generated trouble. But it cannot happen as long as interest rates remain low, stock prices remain buoyant, and inflation remains subdued.
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BERKELEY – A government that does not tax sufficiently to cover its spending will eventually run into all manner of debt-generated trouble. Its nominal interest rates will rise as bondholders fear inflation. Its business leaders will hunker down and try to move their wealth out of the companies they run for fear of high future corporate taxes.