Hitting the limits of fiscal policy in the OECD nations

Hitting the limits of fiscal policy in the OECD nations

The chart shows that in many advanced countries, debt to GDP ratios are rapidly reaching their limits. For some countries like Italy and Portugal, bond holders are increasingly worried about sovereign risk, which is why they have bid up the yields on the bonds issued by these governments.

The fiscal stimulus administered after the financial crisis, together with the low rates of growth, has led to an increase in debt-to-GDP ratios. Another concern is that the fiscal stimulus will no longer be available in the future, as governments start imposing austerity measures and reduce their deficits in an attempt to lower their debt/GDP ratios.

This is likely to affect growth. Both these worries led to the sell-off in the Dow on Thursday.

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