Do you think you guys could help explain this article to me? I'm partially lost.
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it's ok bro, nobody really understands the economist. i just read the names of the articles and the first few sentences and use words like "cornocopia" and "plethora" to describe it the next day and everybody thinks i'm really smart. winning!
Students get very nice discount prices on economist magazine subscriptions so I can look smart on the subway :)
main question: how do banks with too much debt get out from under those debt levels? so a country's debt is typically measured when compared to its GDP- larger countries can safely shoulder larger amounts of debt. this is usually a ratio, ex: debt divided by GDP
so there's three key variables that affect this ratio, which you are trying to make decline over time: 1. real growth- this will make the denominator GDP larger, reducing the ratio 2. inflation- this will also make the denominator larger, reducing the ratio. In another sense, if inflation is high, debt will be paid off in the future with money that is much less valuable than when the debt was issued. this makes paying off debt easier. 3. interest rates- the numerator will grow over time, because you required to make interest payments on debt. The main point of the article is that governments can actually drive down interest rates through policy, although people usually don't recognize this fact. Through 'financial repression', governments can force people to buy their debt, driving up prices and driving down yields. This makes the debt easier to pay off, because it grows less fast. So if the numerator grows more slowly, the ratio overall will decline more quickly.
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