The debt trap has closed in on us.

Sovereign debt is now centre stage. Technical subterfuges, structural deadlock and the illusion of the status quo. My analysis.

Bruno Bertez
20 August 2026

The question of sovereign debt — both at the global level and specifically in the United States, Japan, the United Kingdom or France — now occupies centre stage.

Yet it does so not for the reasons one might expect. It is not the announcement of fiscal consolidation plans or measures designed to reduce deficits that is commanding the attention of markets and policymakers.On the contrary, it is the proliferation of technical subterfuges and cash-management manoeuvres intended to allow the continued — or even accelerated — issuance of new debt.

The real story of the moment is the “kick the can”: how to keep going.

“Kick the can” was well defined by one of the great gnomes, former Treasury Secretary Lawrence Summers: “it consists of doing more of everything that led to the crisis while promising to correct course and do less of it in the future.

”The “kick the can down the road” was first put in place long ago by Japan and was subsequently imitated by the entire West. It is no longer a temporary strategy: it has become the only possible policy.

Faced with unresolved problems, the world chose to postpone the deadlines while increasing them. This was called “extend and pretend”: push back the maturities, increase the debts and pretend that the world remained solvent.

“Extend and pretend” shattered at the beginning of the 2010s when the economic recovery failed to materialise, when Bernanke’s famous “green shoots” rotted instead of taking root, and when it became necessary to sink even deeper into unconventional policies to contain the Great Depression.

We then chose to follow Japan’s path.

Since then I have regularly asserted: “Japan is our future.”We chose — if one can call it a choice, for in reality we already no longer had one — to live in a world of illusions.This world is a fiction, a lie, an illusion. There is no magician capable of reducing the debt or of strongly accelerating real economic growth; there are only illusionists who make people believe that debt is good — as good as money — and that money itself is still as good as the old gold-backed currency of yesteryear.

The immediate reality is managing issuance, not reducing it.

In the United States, federal debt has crossed the threshold of $40 trillion. The deficit remains structurally elevated for as far as the eye can see (around 6–7 % of GDP).

Faced with the sharp rise in long-term yields — the 30-year has reached levels unseen since 2007 — the Treasury responded not by restricting supply, but by doubling its long-dated bond buyback operations. This amounts to supporting the price of its own debt precisely where it is most vulnerable, where there are the fewest interested buyers.These operations neither reduce the stock of debt nor the financing requirement. They merely remove less liquid securities in order to reissue shorter ones, temporarily smoothing the yield curve and preserving the capacity to issue.

In Japan, the JGB issuance plan for fiscal year 2026 remains massive (nearly 181 trillion yen). The Bank of Japan is pursuing an extremely gradual, “Canada Dry” reduction of its balance sheet while explicitly reserving the right to increase its purchases in the event of disorderly moves in rates.The Ministry of Finance is discreetly adjusting the maturity structure (reducing super-long bonds while maintaining intermediate segments). Here again, the objective is not to slow the accumulation of debt, but to maintain market conditions that allow issuance to continue.

These technical devices — buybacks, calendar adjustments, repo facilities, foreign-exchange interventions collateralised by securities — constitute the visible face of a deeper reality: the system is no longer seeking to reverse course. It is seeking solely to preserve the capacity to generate new flows of debt.

The option of consolidation has disappeared.

Why? I have been explaining it for years: there is no way back; we have burned our boats.

The answer is structural.

The accumulated stock of debt (more than 300 % of global GDP for total public and private debt) has reached a level such that even a partial halt to the production of several new trillions of debt each year would trigger a deflationary dynamic of greater magnitude than that of 2008.

Three mechanisms combine:

• The disappearance of the “credit impulse.” In an economy where growth depends largely on the net change in debt, a sharp braking of sovereign issuance would push this credit impulse into negative territory. Aggregate demand would collapse.
• The refinancing wall. A dominant share of current issuance already serves merely to roll over maturing debt. Sovereign refinancing needs in the OECD countries alone exceed $14 trillion. Without continuous flows of new issuance, maturing securities would find no buyers. The financial “plumbing” would clog.
• The balance-sheet effect. Banks, insurers, pension funds and money markets hold considerable volumes of sovereign securities used as collateral. An interruption of issuance would create a risk that would immediately trigger a depreciation of these assets, a contraction of private credit and a debt-deflation spiral (Fisher, 1933). The gears of the repo and liquidity system would seize up.

2008 was a sudden stop in private credit. A stop in public credit, in the present system where governments have become the principal suppliers of safe collateral and the ultimate backstops, would be of a higher order of magnitude.

It is this prospect that has rendered any genuine will to consolidate politically and technically unacceptable.

The system is locked, on autopilot, caught in a gear mechanism: the pilots only pretend to steer it; in reality they follow it, embellishing the journey toward the abyss with more or less imaginative narratives.

“Kick the can” is therefore no longer a tactical choice. It is the logical, objective consequence of a system that has become structurally dependent on the continuous creation of debt in order to avoid implosion.

The monetary and fiscal authorities of the major advanced economies are acting accordingly: they multiply the technical devices that allow issuance to continue while managing, as best they can, market tensions.

This configuration now poses the central question. What is going to happen? What should be done? And what will happen if nothing is done?

If nothing is done — that is, if we simply continue pure “kick the can” without substantial modification of deficit and debt trajectories — several scenarios emerge, in ascending order of probability over the short to medium term:

• A progressive but persistent rise in term premiums and financing costs, which slows growth without causing an immediate rupture.
• A gradual erosion of investor confidence, translating into greater volatility in bond markets and increasing pressure on central banks to intervene even more actively through implicit or explicit monetisation.

Over the longer term, a risk of tipping into a regime of “fiscal dominance,” in which monetary policy is subordinated to the refinancing needs of the debt, with hyper-inflationary consequences…