Sovereign debt: Debt levels are unsustainable, and nothing, as yet, has been done to improve them

It is now more than four years since the financial market crisis broke out with the wholesale collapse of the US mortgage-backed securities market in the summer of 2007. It is 16 months since the European sovereign debt crisis erupted, when, with Greek bonds trading at 80% of face value, primary and secondary government bond markets seized up across the eurozone in the first week of May 2010.

 

The worry today remains what it was back then: that western economies still have not made the wrenching adjustment from a long period when they required excessive leverage just to deliver even moderate growth into a new period when the markets will no longer tolerate such levels of debt. Much of the periodic panic that afflicts markets comes from the worry that the western world still has far too much debt in what is a deleveraging cycle.

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