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What makes a heavily indebted country’s finances become dangerous fastest?

  • The population stops growing 269 votes (20.2%)
  • Interest costs rise faster than revenues 607 votes (45.5%)
  • Investors start buying gold 240 votes (18.0%)
  • Governments raise taxes 218 votes (16.3%)

Total votes: 1,334

Answer: Interest costs rise faster than revenues.

Explanation:

A country can live with a large debt for surprisingly long periods, provided its income grows fast enough to keep servicing it. The danger comes when interest costs rise faster than government revenues: more tax income gets swallowed simply paying interest on old borrowing, leaving less for pensions, healthcare, defence and everything else. Governments then face increasingly unpleasant choices – cut spending, raise taxes, borrow even more, inflate the debt away, or eventually restructure it.