For over a decade now, developed economies (and particularly the US) have been flooded with an unprecedented amount of liquidity via quantitative easing (QE) alongside historically high levels of government debt build-up and ultra-low interest rates. We examine the short-term and longer-term implications of sovereign debt accumulation, and how policy makers are likely to act in order to avoid a disorderly debt crisis. In the past, debt crises typically occurred because debt service costs rose faster than the incomes that were needed to service them, and this precipitates the economy to delever.
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