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A central bank can eliminate a self-fulfilling ('sunspot') debt crisis simply by credibly committing to buy as many bonds as needed at the low interest rate.

Drawn from what Olivier Blanchard said

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investing Putting money into markets on purpose: what a portfolio is for, whether active management earns its cost, and what money is actually a means to.

Does public debt cost what we think it does?

What Olivier Blanchard actually said

  1. Olivier Blanchard Economist; former chief economist of the International Monetary Fund
    This is precisely the role the central bank can play. By announcing that it stands ready to buy the bonds that investors want to sell at the price associated with the low interest rate, and credibly indicating that it has deep enough pockets to buy whatever is needed, it can eliminate the bad equilibrium.

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