In the current climate, there is scant need for nations to be reminded of the risks presented by spiralling borrowing costs.
If markets doubt a nation’s ability to service its debt, then yields are ramped up to levels which governments cannot possibly afford without resorting to rampant money printing, which risks debasement of the currency.
As we are seeing in the eurozone at present, if the ability to create inflation lies beyond the control of the national authorities then the economic and social consequences of spiralling debt can be disastrous.
With this in mind, Yale professor Robert Shiller was invited to the Bank of England last week to present his idea for a far more sustainable way for sovereigns to manage their finances. Governments, he argued, should ditch bonds and instead issue equities with dividends linked to growth. Read more