Sovereign debt Miles.

If you owe a million dollars and your income is ten thousand dollars you have a problem. You're insolvent. You don't make enough money to be able to pay your debts.

If you owe a million dollars and your income is ten million dollars you don't have a problem. You can repay your debt in a year and still have enough left over to get the groceries in.

So looking at how much governments owe and saying ooooooh that's such a lot of money, it's only a matter of time till the government drowns in debt, the currency collapses, we get massive hyperinflation and so on is a bit silly. The amount they owe is irrelevant. It's the amount they owe in relation to their income that matters.

Let's say you want to buy a house. You're in your mid twenties and you and your husband have great jobs as interior decorators and wedding planners respectively. You both go and apply for a mortgage. The bank lending you your money will let you borrow easily three and maybe five times your joint income for a period of twenty five years. They do this knowing you'll also get extra loans during this period for cars, home improvements, having copies of world famous tiaras made and so on.

Governments don't have the same restrictions on borrowing that you do. They're never going to retire so they can borrow over an infinite period of time. They're never going to get sick and be unable to produce income. They're guaranteed to earn an increasing amount of income every year. Most advanced economies are currently running a debt level of around a hundred percent of their income. Less than 20% of the debt level a lot of their citizens are. So they're a much lower risk of defaulting. The people who buy government debt, who are mainly pension fund/fund managers and other financial professionals, are the most sophisticated investors in the world. They know more about debt, credit, returns on investment and earnings than even Korean English teachers, and this is reflected in the disparity between their respective earning capabilities. Currently these investors in the case of most advanced economies are lending buying government debt at a real rate of zero to one percent interest. This is eminently affordable by every government.

But what happens if interest rates go up? What would it mean has happened to economic growth if interest rates go up Miles?