REYKJAVIK — No one yet has any real idea about when the global financial crisis will end, but one thing is certain: Government budget deficits are headed into the stratosphere. Investors in coming years will need to be persuaded to hold mountains of new debt.
Although governments may try to cram public debt down the throats of local savers (by using, for example, their rising influence over banks to force them to hold a disproportionate quantity of government paper), they will eventually find themselves having to pay much higher interest rates as well.
Within a couple years, interest rates on long-term U.S. Treasury notes could easily rise between 3 and 4 percent, with interest rates on other governments' paper rising as much, or more.