Tuesday, September 23, 2008

Debt to GDP

With all the news and talk on the hill of $700 billion this and $1 trillion that, it's not entirely clear that the US will be able to raise this money, or more precisely, be able to raise this money at rates that still make it sensible to borrow it for its stated purpose. Naked Capitalism takes an interesting look:

You can best see the magnitude of the forbearance from this chart, which shows debt to GDP through the end of the first quarter 2008 (click to enlarge). You can clearly see that it continued to grow on a hyperbolic curve. Despite the signs of a credit crunch, we had continued to increase rather than reduce our aggregate indebtedness...Will our creditors play ball and lend us the money? It isn't at all clear that they will, at least at current interest rates. They have become decidedly cool on buying agency paper. The man on the street in Asia and Europe is taken aback by the events of the last two weeks. Funding the US has become controversial in China, and may be in other major lenders. And a rise in interest rates would considerably undermine the supposed benefits of the program.


  1. If the answer to my question was in the article then I apologize, I tried to read it but it was over my head.

    Q: Where stands the national debt as portion of the GDP? What about compared to other points in US history? What about individual state debt/GDP? Is debt bad? What would be different if we paid off the debt?

  2. Debt as a portion of GDP through the end of 1q this year was within this figure here

    The graph goes back prior to 1925.

    I'm not sure what you mean about state debt / gdp.

    Debt is bad if you can't afford it (meaning broadly, you can't produce greater returns than the cost of the debt per unit time or raise the money elsewhere and deem the cost to be a necessary expenditure). So, as the article says:

    The sorry fact is the US has consumed at an unsustainable level. We need to reduce consumption and increase savings (and reducing debt is a form of savings). Reduced consumption means a fall in GDP. In Britain, which is going through its own credit crunch, the officialdom has said that the public will experience a fall in living standards. Why are we unwilling to accept the inevitable?

    What would be different if we paid off what debt?

  3. Hey, this is what the printing press was invented for!


Please post your comment(s) here. To reply to a specific comment, be sure to paste the appropriate @ displayed into the box below as the first line.