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Not a pretty picture: with global debt soaring, the endgame of today's recession will not be pretty.

Publication: The International Economy
Publication Date: 01-JAN-09 		Format: Online
Delivery: Immediate Online Access

Article Excerpt
No one yet has any real idea about when the global financial crisis will end, but one thing is certain: government budget deficits are headed into the stratosphere. Investors in the coming years will need to be persuaded to hold mountains of new debt.

Although governments may try to cram public debt down the throats of local savers (by using, for example, their rising influence over banks to force them to hold a disproportionate quantity of government paper), they will eventually find themselves having to pay much higher interest rates as well. Within a couple years, interest rates on long-term U.S. Treasury notes could easily rise 3-4 percent, with interest rates on other governments' paper rising as much, or more.

Interest rates will rise to compensate investors both for having to accept a larger share...

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