While many Latin countries are now enjoying virtuous debtdynamics, the US is facing a debt dynamic where debt service absorbs an increasing proportion of fiscal revenue.
There are two things that matter in government-debt dynamics: the difference between real interest rates and GDP growth (r-g), and the primary budget balance as a % of GDP (ie, before interest payments).
The simple r-g assumption is one of the most important in debtdynamics: an r-g of greater than zero (when interest rates are greater than GDP growth) means that the debt stock increases over time.
Taken together, the improving dynamics of the debt markets will make the economics for LBOs more attractive, which will support increased deal activity in 2011.
This snowball effect means that adjustments to the level of revenues or even the level of debt are not likely to have major effects once the dynamics are even a bit out of line.