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Low interest rates do not mean a free lunch for government debt

Even with rates hovering around zero in some markets, there is still no such thing as a free lunch

A store closed for liquidation in Trelew, in Argentina's Chubut province, amid the country's ongoing economic and government debt crisis
A store closed for liquidation in Trelew, in Argentina's Chubut province, amid the country's ongoing economic and government debt crisis Photo: Getty Images

With interest rates on government debt at multi-decade lows, a number of leading economists have argued that almost every advanced economy can allow debt to drift up toward Japanese levels (over 150% of GDP even by the most conservative measure) without any great concern about long-term consequences.

Advocates of much higher debt might be right, but they tend to downplay or ignore everything that can go wrong.

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