What to expect as countries try to get out of debt

Niall Ferguson, Historian of the Apocalypse, is worried about public debt levels in the Japan, the US and Europe. He tells us what usually happens as governments try to dig out from under World War size debt burdens.

Here is what usually does NOT happen:

• Slash expenditure on entitlements
• Reduce marginal tax rates to stimulate growth
• Raise taxes on consumption to reduce deficit
• Grow way out without defaulting or depreciating the currency

and what usually DOES happen:

• Oblige central bank and commercial banks to hold govt. debt
• Restrict overseas investmnet by firms and citizens
• Defaul on commitments to politically weak groups and foreign creditors
• Condemn bond investors to negative real interest rates