According to Ruchir Sharma over the past 40ys total debt more than tripled to 350% of global GDP and the number of countries with a total debt amounting for more than 300% of GDP has risen from a half dozen to dozen, including the US /FT, 22 November 2021/.

Indeed, the world is in a debt trap.

In principle, there are three ways to get out of this trap. Firstly, a higher than anticipated and longer lasting inflation might eat our debts, bites by bites. It is too slow, too little and also risky because built-in expectations might result in runaway inflation.

Secondly, a new global financial crisis can destroy a good deal of players as happened during the 1929-33 crisis. Too fast, too much and too dangerous.

Thirdly, we can follow the Japanese way where public debt is about 240% of the GDP and the BoJ owns the half of it.

Historically third ways did not work. However, in our times this financial Third Way seems to be the only manageable path for getting out of the global debt trap, at least for the bigger players.

Governor Matolcsy, MNB, the Central Bank of Hungary

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