With the developed world’s government indebtedness at a seven-decade high, prospects for economic growth are poor, attended by higher rates of inflation, according to a white paper released by Boston-based GMO on Monday, July 12.
Edward Chancellor, a member of GMO’s asset allocation team, writes in “Reflections on the Sovereign Debt Crisis” that a danger also exists that “bondholders might take fright if fiscal deficits in several countries were to continue unchecked. According to this scenario, Greece is the harbinger of a sovereign debt crisis that threatens to engulf several leading economies.”
Chancellor’s paper addresses several issues:
? Why in the past have governments defaulted on their debts?
? When have deeply indebted countries kept faith with their creditors?