As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt.
Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.
Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.
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This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping economic growth by forcing up rates on debt held by companies, homeowners and consumers.
“It will be more expensive for everybody,” said Olivier J. Blanchard, chief economist of the International Monetary Fund in Washington. “As government borrowing in the world increases, interest rates will go up. We’re already starting to see it.”