Public debt of the ten leading rich countries is projected to jump from 78 per cent in 2007 to 106 per cent in 2010 and further to 114 per cent in 2014. “We are all Keynesians now”, as President Nixon once remarked. Financing these fiscal deficits has not been a problem so far.
The extreme risk aversion in the wake of the crisis triggered “flight to safety” and “flight to liquidity” which, in turn, ensured that there was enough appetite for treasuries. Even so, yields on treasuries have started firming up in recent weeks suggesting the return of some risk appetite.