Thanks for your comment, Phibion.

You are absolutely correct that a meaningful rise in interest rates would change the rules of engagement.

However, because so many governments, not just in the West but also in Japan and quite a few emerging markets, are heavily in hock, unless they ask central banks to cancel a sizeable portion of the government bonds they own, it will be very difficult for these central banks - most of them being controlled by their respective state - to raise interest rates. Governments would be shooting themselves in the foot, as raising interest rates would increase the cost of servicing the public debt.

In summary, interest rates will not rise substantially, and debtism will not go away, until the pile of global sovereign debt is made to shrink considerably. Whether this occurs through gradual develeveraging or sudden write-off probably requires a decent level of coordination.

Otherwise, the first government to cancel its debt could have a credibility issue among the international community. And the first one to adopt austerity measures would risk entering recession. A real dilemma!