Japan must choose one of two bad options. Keep rates at zero to manage its massive debt but watch the yen collapse from inflation. Or, raise rates to save the yen but risk bankrupting the country with high interest payments on its 200%+ debt-to-GDP. There is no viable middle ground.

When investors stop buying government bonds, the central bank is forced to print money to cover the debt. The market anticipates this, triggering a self-fulfilling prophecy of high inflation, which effectively devalues the debt and impoverishes citizens.

When national debt grows too large, an economy enters "fiscal dominance." The central bank loses its ability to manage the economy, as raising rates causes hyperinflation to cover debt payments while lowering them creates massive asset bubbles, leaving no good options.

A government funding unsustainable promises has only three choices, all of which terminate in dead ends. It can tax harder, causing capital flight; borrow more, leading to a debt crisis; or print money, destroying the currency's value. Each path inevitably leads to economic ruin.

The endgame for unsustainable government debt is not austerity but monetization. Albert Edwards argues that political weakness and fiscal incontinence will eventually force central banks to print money to cover debts. This 'fiscal dominance' will mark a return to the double-digit inflation levels of the 1970s.

Faced with massive debt, governments have five options: austerity, default, high growth, hyperinflation, or financial repression. Napier argues repression—keeping inflation above interest rates to erode debt—is the most politically acceptable path, just as it was post-WWII.

Investor Ray Dalio explains that national debt reaches a crisis point not because of its size, but when two things happen: debt payments squeeze out essential spending, and low demand for new debt forces central banks to print money to buy it, thus devaluing the currency.

Governments with massive debt cannot afford to keep interest rates high, as refinancing becomes prohibitively expensive. This forces central banks to lower rates and print money, even when it fuels asset bubbles. The only exits are an unprecedented productivity boom (like from AI) or a devastating economic collapse.

Sovereign debt's value, and thus a currency's credibility, is underpinned by three limits. Governments have surpassed the economic limit (debt rises faster than GDP), the fiscal limit (deficits become unsustainable), and the inflationary limit (money printing causes inflation). This breach is why reserve currency status is now in question.