Mon. Dec 6th, 2021

Look for sales by long-term bondholders Ruchir Sharma (“There is no easy escape from the global debt trap”, Opinion, 22 November) is certainly correct in claiming that the world is caught in a debt trap that makes it difficult for central banks to raise their policy interest rates.

However, he probably thinks wrongly that it makes it rational for long-term interest rates to remain low.

If central banks appear reluctant to raise their interest rates for fear that asset price and debt bubbles will burst, they run the risk of causing interest rates to become more negative in real terms than they are today. This in turn will jeopardize an acceleration in inflation from today’s already uncomfortably high levels.

At some point, one would think that holders of long-term bonds would remember that an old way for governments to deal with their debt problems is to blow their way out of those problems.

When markets do remember this, they will start selling long-term bonds and force long-term interest rates higher.

Desmond Lachman
American Business Institute
Washington, DC, USA

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