15 - Balance Sheet & Soverign Liquidity Flashcards by Craig Usher

Q

Where is the trouble zone for debt/GDP

A

80%

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Q

What choices are there for high GDP/debt

A

Deflate. Not desirable, slows down economy
Default. Not desirable, lowers US credit rating, makes it hard to borrow in future
Inflate further, stimulate economy into spending more and increases the rate of GDP increase relative to increase of government debt

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Q

Why is interest rate suppression necessary for high debt/GDP

A

To keep the interest of government debt low and manageable. Little choice but continue to inflate

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