Interest rate explosion to follow debt explosion?

From Powerline. About the US, not Australia, though the economics would be same. But what happens in the US affects everybody.   In 2003, Thomas Laubach, an economist in the Federal Reserve's Division of Research and Statistics, wrote a paper titled "New Evidence on the Interest Rate Effects of Budget Deficits and Debt". At the time, federal debt here in the U.S. seemed to be under control, and I'm not sure how much notice the paper received. But its conclusion has obvious implications today, as we contemplate the unprecedented mountain of debt that the Obama administration intends to incur in the years to come: This study has shown that statistically significant and economically plausible estimates of the effects of government deficits and debt on interest rates can be obtained by focusing on long-horizon forecasts of future deficits or debt, and future interest rates. The projections of deficits and debt published by the CBO and the OMB are arguably among the best publicly available forecasts for these variables. The effects of these projections manifest themselves at the longer end of the yield curve, as economic reasoning would predict. All else equal, the results of this study suggest that interest rates rise by about 25 basis points in response to a percentage point increase in the projected deficit-to-GDP ratio, and by about 4 basis points in response to a percentage point increase in the projected debt-to-GDP ratio. If, like me, you're not an economist, that may seem a little dry. The Telegraph supplies some context: "US lurching towards 'debt explosion' with long-term interest rates on course to double."

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