"Similarly, when
debt levels are many times the value of GDP, a large proportion of GDP needs to
be rolled over every year. Say, debt is 400% of GDP and the average maturity of
debt is five years; then 80% of GDP needs to be rolled over every year. If
creditors become nervous about the debtors' ability to repay - as they will in
the face of falling asset prices or stagnant incomes - they they will be
unwilling to extend the loan. If debtors are able to pay out of their own
resources, they will see a fall in their spending power. If debtors are able to
repay by selling an asset, there will be a fall in asset prices. And if they
are unable to repay, there will be a hit to the creditors' balance sheet. All
three results hurt the economy."
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http://www.economist.com/
