New Delhi, Jan. 14 -- Japan, the US and other countries with sovereign debt at or above total GDP need to shrink their fiscal deficits to keep their debts from growing to terrifying levels. The problem is particularly concerning when a country faces higher real interest rates, since fiscal deficits rise further when the government refinances debt.

But even more worrying is the possibility of a doom loop, with higher rates driving higher deficits that in turn produce yet higher rates as investors lose confidence in government finances.

To be sure, higher market interest rates could also be a salutary wake-up call if the government, fearing a doom loop, takes steps to cut its deficit. But fiscal consolidation requires painful austerity, a...