Critics of government spending argue, first, that such spending has an immediate effect of increasing debt which, if associated with a loss of confidence by investors, will also increase the cost of servicing that debt as a consequence of increased interest rates [ 6, 7].
I would add that one thing the model doesn't cover is debt of financial intermediaries, which is a big part of the real story and if anything bears even less resemblance to the notion of debt as a consequence of national overspending; to a large extent it's just an accounting issue, because old-fashioned deposits aren't counted as debt even though they are.
The great unexplored area of public expenditure is the annual revenue consequences of servicing the long-term PFI debts, all a consequence of investment in new hospitals, courts, schools, roads, IT and water and waste infrastructure.
And it's quite clear from the history that both Italy and (especially) Japan ran up high debts as a consequence of their growth slowdowns, not the other way around.
The much-trumpeted accomplishment of shaving almost a quarter of a trillion dollars off the national debt was mainly a consequence of the gridlock both parties deplored.
Our credit rating dropped because of Republican radicals refusing to raise the debt ceiling as a consequence of their dangerous, overly-simplistic economic philosophy.
As a consequence, debt increases, but GDP does not.Furthermore, the purchase of an asset, such as a home, will help push up the market price of that asset.
"As a consequence, debt will get devalued, and the wash of money in the system would suggest a greater likelihood of an inflationary outlook, which will benefit gold," he notes.
Looked at another way, however, Toys R Us presents a powerful example of what can go wrong when private-equity firms take over a company and burden it with debt — a practice with consequences that may help explain why so many working-class voters supported Donald Trump.
By endogenizing the bankruptcy process, this paper shows how debt and equity arise as a consequence of an optimal allocation of cash-flow rights and monitoring rights, and how equity leads to dividend signaling.
