The crisis explained in one chart: Debt-to-GDP

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  • Sat, Nov 28, 2009 - 06:08pm

    #1
    Vit

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    The crisis explained in one chart: Debt-to-GDP

Hello,

I I found another chart US Debt to GDP from  http://www.zFacts.com (see attachment) .
It looks different then total Debt to GDP from http://www.PeakProsperity.com . 

I will appreciate for any comments.

Sincerely,
Vitali Apirine

  • Sun, Nov 29, 2009 - 06:04pm

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    Peak Prosperity Admin

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    Re: The crisis explained in one chart: Debt-to-GDP

Vit,

Thanks for joining this site; posting is crucial to your education, so keep posting!

The reason for the difference between the two graphs is that in the one posted above they are using the calculation of the Total Public Debt/GDP. This calculation does not consider the large debts of Social Security and Medicare because these are IMPLIED liabilities, meaning at any moment Congress can deny the payouts.

Considering that the majority of the voting population is counting on those IMPLIED liabilities to become EXPRESS liabilities you may as well just add these debts to the Total Public Debt… but that number is too skeery for the general public to accept and only those who seek to gain knowledge are aware of it.

Steve

  • Sun, Nov 29, 2009 - 07:04pm

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    Peak Prosperity Admin

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    Re: The crisis explained in one chart: Debt-to-GDP

Hi, Vit. kemosavvy makes a good point. Also, keep in mind that the fundementals have changed. That big spike that you see under Truman’s presidency is because of WWII. The US was a mighty industrial power at that time. We manufactured a ton of stuff and consumed a lot of it domestically. We were also able to produce enough oil to cover our energy needs back then.

We could actually produce and save our way out of debt back then.

Now that the US produces next to nothing in the way of manufacturing and is a net importer of oil, those two factors have changed. The fact of the matter is, we’re just not producing much of anything that the world actually wants to consume (apart from weapons). If we were, you wouldn’t see $20b deficits in the current account of the US. Sure we’re responsible for a lot of remarkable technological innovation, but we’ve offshored most the production of those goods.

It’s a different situation now. The fundementals have changed.

  • Mon, Nov 30, 2009 - 12:59am

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    Re: The crisis explained in one chart: Debt-to-GDP

If you have the time and you want a further explanation of the national federal debt and the debt-to-GDP ratio please check out my 26 minute video on youtube here.

http://www.youtube.com/watch?v=ICS81b56rso

This was a video of a presentation that I was doing in January of last year.

Steve

  • Mon, Nov 30, 2009 - 03:37am

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    Re: The crisis explained in one chart: Debt-to-GDP

[quote=Vit]

Hello,

I I found another chart US Debt to GDP from  http://www.zFacts.com (see attachment) .
It looks different then total Debt to GDP from http://www.PeakProsperity.com . 

I will appreciate for any comments.

Sincerely,
Vitali Apirine

[/quote]

This is easy – the chart you are showing is mislabeled and therefore inaccurate.  The correct title would be “Federal Debt Held by the Public as  Percent of GDP”

It excludes intragovernmental debt (that’s money ‘borrowed’ from the entitlement programs with a promise to pay it back, with interest) and it excludes corporate, municipal, state and private debt.  And of course liabilities for the entitlement programs are excluded.

The true debt of a nation is the entire stock of it, not just some random, smallish segment trotted out when the mood strikes.

Of course, we’ve covered all of this in exquisite detail numerous times here on the site before.  Please search for past articles using the keywords “insolvent”, “federal debt”, etc.  There are probably 10 or more lengthy articles on this subject.

  • Mon, Nov 30, 2009 - 02:26pm

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    Re: The crisis explained in one chart: Debt-to-GDP

> Now that the US produces next to nothing in the way of manufacturing and is a net importer of oil, those two factors have changed.

So, according to the Alliance for American Manufacturing, producing stuff accounts for 12% of the US economy (see http://www.americanmanufacturing.org/issues/manufacturing/). Not as much as, say, health care, but not exactly “next to nothing.” Maybe you have different data? I do remember when the Bush administration implied that fast food jobs might also be “manufacturing jobs” (see CBS News, http://www.cbsnews.com/stories/2004/02/20/politics/main601336.shtml) so maybe the AAM is using similiar fuzzy definitions?

(PS, this is my first post! I found the Crash Course, and have a couple issues with the logic and conclusions, but it’s a lot more lucid than what I’m used to seeing from crazy libertarian gold bugs 🙂 )

 

  • Mon, Nov 30, 2009 - 07:47pm

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    Re: The crisis explained in one chart: Debt-to-GDP

Chris,

Where can I find a chart that encompasses all those figures… or where can I go to build one?

I plan on doing a presentation later this month on the subject and it would be nice to have a current up to date chart.

Steve

  • Mon, Nov 30, 2009 - 08:39pm

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    Re: The crisis explained in one chart: Debt-to-GDP

[quote=cmartenson]

This is easy – the chart you are showing is mislabeled and therefore inaccurate.  The correct title would be “Federal Debt Held by the Public as  Percent of GDP.

It excludes intragovernmental debt (that’s money ‘borrowed’ from the entitlement programs with a promise to pay it back, with interest) and it excludes corporate, municipal, state and private debt.  And of course liabilities for the entitlement programs are excluded.

The true debt of a nation is the entire stock of it, not just some random, smallish segment trotted out when the mood strikes.

[/quote]

I wouldn’t go that far.  The “national” debt to GDP, or simply debt/GDP is a proxy for government debt.  That’s the apples to apples metric most use internationally.  Sorry, not kitchen sink debt.  Requisites for entry into the EU weren’t built around nebulous compilations of IOUs, or estimates of future claims.  They used maximum debt/GDP of the member states and that’s what you should remember (aka Maastricht Treaty).  You also hear about Japan, at 130% debt/GDP.  The stat shows up a lot and will test your frame of reference much more than the other calc.

Some conservatives monetize at least SS and other entitlements to come up with a present value debt figure of 50-60tt vs our ~14tt GDP.  Never mind this is higher than Chris’ 340% figure because it, like Chris’ number, relies upon assumptions for what the liabilities are.  It relies upon assumptions as to whether they’ll be honored.  And lastly, it assumes a discount rate at which you take future liabilities back to the present.  So, if you want a number free of randomness, alarmism, or mood, use debt/GDP! 

  • Mon, Nov 30, 2009 - 09:07pm

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    Re: The crisis explained in one chart: Debt-to-GDP

Here are three interesting links on debt:

 

http://www.federalreserve.gov/releases/z1/Current/z1r-4.pdf

 

http://www.aier.org/research/briefs/1914-debt-in-the-us-hits-a-record-high

 

http://www.ncpa.org/pdfs/ba662.pdf

  • Mon, Nov 30, 2009 - 10:40pm

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    Re: The crisis explained in one chart: Debt-to-GDP

FinPro,

The oriiginal question was ‘why are these different?’ not ‘which one is a better metric?’

The two charts are different and there are reasons as to why.

I think we all agree that the top chart is what Chris says, Federal Debt held by the public divided by GDP. The other chart, Chris’ chart from the Crash Course presentation includes future implied liabilities (entitlement prog.’s), private, corporate and municipal debt. 

My point for posting this is that I don’t want to see this thread spiral into an argument that can possibly have no answer, such as ‘which is better?’. that is a question of opinion.

You are correct though that the ‘Federal debt held by the public divided by GDP’ is the most common used equation to compute Debt/GDP. So when I see the term Debt/GDP used by media that is the equation I know they are referring to.

Steve

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