The "debt trap" is not what we think it is

There is often concern about the very high level of debt ratios in OECD countries. This concern is due to the risk of a loss of borrower solvency and default if interest rates rise. But in reality, the "debt trap" is probably different. In highly indebted economies, a normalisation of interest rates is impossible as it would immediately plunge these economies into recession: central banks cannot normalise interest rates, as shown by the example of the United States in the recent period. If interest rates remain low relative to growth for a long time, the risk is then not a borrower insolvency crisis, but widespread asset price bubbles. The crisis linked to the "debt trap" is then not a borrower default crisis, but one linked to a bursting of bubbles when asset prices become too high , even if interest rates remain low.