G7 economies keep increasing debt to GDP ratios with the exception of Germany, which still remains well below the 90% mark that’s considered the point of no return. Deficits are on the rise as well, which means that the problem is likely to accelerate. The possible solutions are: (1) default, which for now seems distant and unlikely, but if the debt ratios keep growing, at some point downgrade talks will start to be part of our daily conversation. (2) Restructuring, which is a form of default, and (3) financial repression, that is, deflating the debt through high inflation. This is exactly the opposite of what central banks are currently doing, so either we reverse course and let prices accelerate or the debt ratios will grow again. There is, of course, a fourth solution, fiscal discipline, but that will require a political sacrifice, that no leader will accept today. And the filth solution, will be a paradigm shift, perhaps through AI, to fuel a global economic growth similar to the one we saw in the past from the steam engine, or the internet. If you have to bet on the most likely solution, where would you put your money?
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