The exploding government debt burden in nations ranging from Greece, to the United States, to Japan will end in government defaults or higher inflation, says New York University economist Nouriel Roubini.
“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini said at a recent conference, Bloomberg reports.
“Unfortunately in the U.S., the bond-market vigilantes are not walking out.”
Bond vigilantes are traders who sell bonds in markets where the country pursues lax fiscal and monetary policy.
“The thing I worry about is the buildup of sovereign debt,” Roubini said.
If the debt problems aren’t solved soon, nations will either default on their government debt or monetize them by printing money, which would create inflation, he maintains.
“Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”
The U.S. budget deficit totaled $1.4 trillion last year, and the Congressional Budget Office predicts the government debt burden will total 60 percent of GDP this year.
As for Greece, “It could eventually be forced to get out of the euro,” Roubini told Bloomberg.
But don’t expect the U.S. to intervene in Europe’s crisis, says Randall Stone, a political scientist at the University of Rochester.
“There’s a sense in the Obama administration that it’s Europe’s responsibility to straighten out problems in the euro zone,” he told The New York Times.
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