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The Debt Trap: Simplified

Stack of U.S. hundred-dollar bills
Stack of U.S. hundred-dollar bills

Earlier today, I spilled quite a bit of pixels explaining why very high rates of public debt constrain economic growth. It occurs to me that a simplified version might help.

When government debt grows beyond 90 percent of GDP, people and businesses get worried. This leads to a private sector contraction.

This is why I call it a debt trap. Government borrows to replace declining private demand, which leads to further declines in private demand.

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