Thank you — your vote has been counted.

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

  • The population stops growing 122 votes (21.3%)
  • Interest costs rise faster than revenues 271 votes (47.4%)
  • Investors start buying gold 104 votes (18.2%)
  • Governments raise taxes 75 votes (13.1%)

Total votes: 572

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.