Interest rates on government debt are still low.

Interest rate spreads on Italian sovereign debt have widened, but not sharply.

This means extending the maturity dates of debts and reducing the interest rate on the new debt to levels much lower than currently unsustainable market rates.

That is because an increase in the inflation rate causes interest rates on new debt to rise by an equal amount.

But as debts mount, and global interest rates rise, investors will become rightly nervous about the risk of debt restructuring.

Government debt service has in general become easier, owing to low interest rates.

The combination of exploding debt and rising interest rates is a recipe for economic disaster.

In Europe, the market for Greek debt has frozen, and interest rate spreads between Irish and German euro denominated debt recently reached alarming levels.

Further haircuts on private claims would also be needed, starting with a moratorium on interest payments.

The problem is not illiquidity but insolvency at prevailing interest rates.

This obviously depends in part on the amount of debt outstanding, the interest rate, and the country s growth prospects if it continues to pay.

As government debt has ballooned and policy interest rates have hit rock bottom, central banks have focused on increasingly innovative policy to boost demand.

Indeed, increased debt servicing obligations resulting from higher interest rates, along with weakening export prospects, ran the risk of reproducing an unsustainable debt burden.

Higher inflation would cause the interest rate on new debt to rise in a way that prevents the erosion of the real value of the total debt.

Until recently, the bond markets treated all euro sovereign debts as virtually equal, not raising interest rates on high debt countries until the possibility of default became clear.

Lower demand for Greek debt caused its price to fall, meaning that its yield in terms of market interest rates rose.

France in the ancien régime repeatedly imposed semi default on its creditors by reducing interest rates and extending maturities.

Deflation increases the real (inflation adjusted) debt burden, as well as the real interest rate.

In the case of Greece, the interest payments apply to government debt held by Greek individuals and institutions, as well as to government debt held by the IMF, the European Central Bank, and other foreign lenders.

But if market nervousness persists and interest rates remain high relative to rates for secure German debt, the debt burden will rapidly become unsustainable.

Investors naturally respond to unsustainable debt by selling bonds until interest rates become ridiculous.

These countries existing foreign debt, by contrast, carried an average interest rate of 1.6 with an average maturity of 28.7 years.

This holds down interest rates on that debt in the short run, but creates even bigger potential losses in the case of potential default.

At the very least, the combination of higher interest rates in the shadow banking sector and weaker nominal GDP growth undermines borrowers debt repayment capacity.

The US national debt GDP ratio will be on track to fall from its current level of 75 to 50 by 2035. Moreover, the US will begin running primary budget surpluses the fiscal balance minus interest payments on existing debt by 2015.

The second element of the debt relief package would be more innovative If Greece s economy performs well, the generous extension of maturities can be clawed back or the interest rate raised.

If their public argument is incorrect (and they must know it), why do bankers prefer short term borrowing to long term equity finance?

A federal budget that achieves primary balance has federal revenues equaling spending but with a remaining budget deficit as a result of interest payments on past debt.

Ordinarily, a sharp rise in oil prices quickly translates into higher inflation expectations, followed by rising interest rates at all maturities.

The sensible middle position would surely be an agreed write off of a portion of the outstanding Greek debt, combined with a five year moratorium on interest payments on the remainder.

This inverted pyramid of debt collapsed when the Fed finally put a halt to the spending spree by hiking up interest rates.

For the Italian state, interest rate convergence brought a medium term reduction in debt service payments of up to 6 of GDP.

Low long term interest rates have kept the region s debts manageable, while high consumer demand has helped bid up prices for the region s commodity exports.

Rising spreads in Spain and Italy show that contagion is already occurring, even in the absence of an official decision to write down Greek debt.

And even before that default occurs, interest rates on Spanish or Italian debt could rise sharply, putting these countries on a financially impossible path.

In Germany, for example, interest rates on public debt up to five years will be negative, and only slightly positive beyond that, producing a weighted average of zero. Clearly, Japan s near zero interest rate environment is no longer unique.

And, because people trade bonds for commodities, cash, and stocks, the prices of government debt are the rate of inflation, the nominal interest rate, and the level of the stock market.

Countries debts undoubtedly play a vital role in the global financial system.

That s why market interest rates on privately held Greek bonds and prices for credit default swaps indicate that a massive default is coming.

Moreover, in the case of domestic debt, a higher interest rate or risk premium merely leads to more redistribution within the country (from taxpayers to bondholders).

Although he shored up his businesses with additional loans and postponed interest payments, by 1991 increasing debt brought Trump to business bankruptcy and to the brink of personal bankruptcy.

Strictly speaking, zero rates are observed only for nominal, medium term debt that is perceived to be riskless. But, throughout the eurozone, rates are close to zero and negative for a substantial share of government debt and are expected to remain low for quite some time.

Deflation increases the real (inflation adjusted) debt burden, as well as the real interest rate. Though there is little evidence of the importance of small changes in real interest rates, the effect of even mild deflation on real debt, year after year, can be significant.

Those high interest rates strangle businesses and households, causing further economic collapse and making debt ever more unsustainable.

But, even though the additional loans that Greece will soon receive from the European Union and the IMF carry low interest rates, the level of Greek debt will rise rapidly to unsustainable levels.