Sky-high fiscal deficits: Where is the limit?

In response to the COVID crisis, OECD countries have run huge fiscal deficits in 2020. Given the ongoing recovery plans, these deficits are likely to remain in place in 2021. This raises the question as to how high fiscal deficits and public debt ratios can go: Without central bank intervention, the limit would have been the capacity of economic agents to hold more government bonds. If this capacity was breached, interest rates would have risen sharply to the point that the expansionary fiscal policy would have brought about a contraction in demand; With central bank monetisation of fiscal deficits, the limit is the capacity of economic agents to hold more money. If this capacity is exceeded, either long-term interest rates would not fall sufficiently to generate a sufficient rise in demand for money, or there would be an unbearable bubble in other asset prices (equities, real estate ) .