Debt to GDP ratio not so dangerous

19 posts / 0 new
Last post
toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Debt to GDP ratio not so dangerous

Hi, I think your seminar is very good at explaining the current situation and I agree with most of your seminar course but would challenge one crucial assumption that leads to the conclusion that the next 20 years will be very different (apparently presenting us with much less financial freedom, quality of life etc). In your central graphic "The historical level of debt" you show that Debt/GDP used to be around 200% (or 2.0x) until the mid 80s from when it started to raise to 342% today. I cannot see how you can conclude from that fact alone that our next 20 years will change substantially. We simply don't know how much debt is too much, maybe 400%, maybe 500%, maybe 800%. The mathematical limitations to this ratio are only two-fold: (1) If there is not enought GDP left to pay the interest on the amount of outstanding debt, which would reprent a default of the US and lenders will call in their loans or, (2) the fact that current lenders fear that they will never get their money back from the US when their debt is due. But we simply dont know whether that fear will start limiting the US new debt issuance at a level of 700%, 800% or 1400%.

A similar example can be seen on a corporation level. Normal investment grade corporations have debt/Cash (EBITDA) levels of 1-3x, since the mid 80s Leveraged Buyouts created a group of highly levered companies with debt to EBITDA levels of up to 5-6x and in recent years those levels went up to 12-13x. My point is that in every year experts thought that the debt:EBITDA ratio could not be increased because no investors would want to risk lending to such a company but every year experts were proven wrong.

Only in the last 12-24 months with the credit crisis these levels have come down to maybe 6-7x but rest asured they will go back up in a few years.

So in conclusion, I am not sure that 342% debt to GDP ratio is going to bring the US system to a collapse and the next 20 years will be different. Maybe things will go on for another 10 years and levels of 1200% are sustainable. Why not?

What do you think?

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Debt to GDP ratio not so dangerous

 

Quote:

I cannot see how you can conclude from that fact alone that our next 20 years will change substantially.

If you watch the entire course, I think you will find that the statement "the next 20 years will be nothing like the last 20 years" is based on much more than just the observation that our debt to GDP is at a historic level.

I am confused about your observations on EBITDA.  You seem to refer to it as a debt/cash ratio, but it has nothing to do with debt to cash.  EBITDA is Earnings Before Income Taxes, Depreciation and Amortization.  It's a cash-flow figure, not a balance sheet figure.  Its purpose is to provide a measure of a corporation's actual cash-producing ability, before the accounting statements screw it all up by subtracting taxes and accounting for non-cash adjustments, the biggies of which are depreciation and amortization.  Debt payments are subtracted before you even get to this figure.

Back to the matter at hand, though, there is a maximum level of debt that can be sustained by any cash flow, depending on the interest rate.  The fact that our current debt to GDP ratio is higher than it was when we fought the biggest war in world history, on two fronts, no less, should provide cause for concern, to say the least.  Also, we don't need to guess too much about how much debt is possible.  It should be pretty easy to figure out: just take the GDP, figure out how much in taxes needs to be taken out of it to pay interest on the debt (since we want a maximum, we'll leave the principle to the dogs - hell who cares if we pay it off right!), and as long as there's some GDP left, I guess we still have an economy (one based on complete slavery, but technically I guess it's still there).  

I'm not going to bother doing the math.  Whatever the figure is, that's not a world I want to live in.  

A. M.'s picture
A. M.
Status: Diamond Member (Offline)
Joined: Oct 22 2008
Posts: 2367
Re: Debt to GDP ratio not so dangerous

I'd submit that it really doesn't have anything to do with how far in debt we are.

I like to be Alexandrian when it comes to tangles, and with this particular Gordian knot, I apply the following logic:

A man lives on $1000/mo. He he has historically only spent about $1200, and his creditors are all too willing to loan him the money at interest. With full faith, the creditors extend him a line of credit that allows him to spend 34,000 per month.
It's all good! Interest baby!

So the man goes on spending and spending and making the minimum payments, accruing a exponentially larger debt every month.
Then, one day, he goes to work and finds out that he's getting his hours slashed in half, losing his benefits and might take a involuntary furlough for 6 months, until "production" gets up again.

The creditors scramble and start sending letters in righteous indignation, "Sir, your irresponsibility..." never giving a moments pause to consider the course of action that led to the spiraling cycle of debt accumulation.

In this story, it doesn't matter if the man is spending $34,000/mo, or $340,000/mo. Dimishing returns.
The bottom line is he can't afford to pay for his lifestyle.

How much longer is China going to service our debts? 
What is the possibility that we're going to spring fourth from the wreckage of decades of overspending and irresponsible lending and charge headlong into the trenches to produce articles that the rest of the world simply can't live without?

If you hesitate in answering either of those questions, it's worth considering how a default of the American economy would change the socio-political landscape. Our state is slashing civil service jobs like crazy; cops, firefighters, medics, ad nauseum so they can spend more time deliberating in the state capital about how they can save money.

Does that seem right to you?

Aaron

toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Re: Debt to GDP ratio not so dangerous

I am confused about your observations on EBITDA.  You seem to refer to it as a debt/cash ratio, but it has nothing to do with debt to cash.  EBITDA is Earnings Before Income Taxes, Depreciation and Amortization.  It's a cash-flow figure, not a balance sheet figure.  Its purpose is to provide a measure of a corporation's actual cash-producing ability, before the accounting statements screw it all up by subtracting taxes and accounting for non-cash adjustments, the biggies of which are depreciation and amortization.  Debt payments are subtracted before you even get to this figure

Yes, EBITDA is a cash proxy and no, it is not a balance sheet figure. I was never saying that. I compare EBITDA (of a company) to GDP (of a country). EBITDA for a company is what GDP is for a country, the inherrent operational cash generation capability without accounting adjustments. Therefore the Debt:GDP ratio of a country is comparable to the debt:EBITDA ratio (or Leverage) of a corporation. Thats all I am saying. And leverage for companies has been going up without anyone knowing how high it can go (apart from the mathematical limit). As you rightly say, in the end all US debt could be an interest-only loan and lets say 90% of GDP would be used to serve that interest. No problem as long as you find investors to re-finance at maturity. And I am saying that scenario has been going on for corporations in the Leveraged Buyout markets fo years. So at a US debt:GDP ratio of 342%, I am not sure if we could not continue (without impact) goiong to 800%, 1100% etc. I think its a big leap from the assumption "debt:GDP has risen over the last 20 years from 200% to 342% today" and the conclusion "this is the end", therefore "our life in the next 20 years will be very different from the last 20 years". Thats a big leap in argumentation!

 

toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Re: Debt to GDP ratio not so dangerous

A man lives on $1000/mo. He he has historically only spent about $1200, and his creditors are all too willing to loan him the money at interest. With full faith, the creditors extend him a line of credit that allows him to spend 34,000 per month.
It's all good! Interest baby!

The difference between your example and countries like the US is that the monies borrowed by the US governement is mostly used to fund growth and generate future income/income opportunities. This in return will generate more GDP to bring down the debt ratio. Your man in your example on the other hand takes his debt and spends it all so ther is no benefitial income growth generated by th eman. Of course that's pretty silly. The distinction between the two purposes of debt is also mentioned in the crash course (I forgot the name he used). And thats a key issue with the US population. Most of their private debt is used to consume without generating future additional income, while businesses and governments to a large extend as well, use issued debt as raised capital and invest in future income. for example a person takes out a student loan, pays dor a college degree to have a bigger income later. A company and to a large extend a government acts in a similar way.

How much longer is China going to service our debts? 
What is the possibility that we're going to spring fourth from the wreckage of decades of overspending and irresponsible lending and charge headlong into the trenches to produce articles that the rest of the world simply can't live without?

China doesnt service the debt, the US has to service their debt. China lends to the US (or invests their surplus in the US) because they trust its a sound risk adjusted investment. They will keep doing that until the debt:GDP ratio is so high that the interest they receive does not adequately re-imburse China for the risk in lending to the US. But who knows at what ratio that is? Thats my point. Just assuming that the ratio of 342% is too high is wrong. There is no evidence. As long as China is adequately re-imbursed (with the level of interest the US pays) for the risk it takes ( reflected in higher debt:GDP ratio), the deal will work. Believe me, I have am doing these deals on a corporate level on a daily basis.

RNcarl's picture
RNcarl
Status: Gold Member (Offline)
Joined: May 13 2008
Posts: 382
Re: Debt to GDP ratio not so dangerous

Well,

Using the example of leveraged buy-outs of corporations, I have a question.

For whom is the leveraged buy-out good for?

Are the companies in question really better of with those kinds of debt ratios?

As Patrick pointed out, you can't just look at debt to GDP ratio as the only reason the next 20 years will be very exciting. My first training was as an engineer. We learned that mathematical exponents were bad when applied to real world situations.... unless of course, you were a munitions maker and your object was to make things go "BOOM!"

I believe the object was to show that there comes a time in the curve where the doubling of the "growth" takes an increasingly shorter peroid of time. So, while a 342 percent ratio may not be un-sustainable, the fact that it lies near the exponantial part of the curve should make us take pause.

FWIW - C.

A. M.'s picture
A. M.
Status: Diamond Member (Offline)
Joined: Oct 22 2008
Posts: 2367
Re: Debt to GDP ratio not so dangerous

Toms,

Quote:

The difference between your example and countries like the US is that the monies borrowed by the US governement is mostly used to fund growth and generate future income/income opportunities. This in return will generate more GDP to bring down the debt ratio. Your man in your example on the other hand takes his debt and spends it all so ther is no benefitial income growth generated by th eman

My example is non-specific with regards to how the man uses his credit because I don't think funding the GDP is any more beneficial than blowing your cash on material assets, when you figure in diminishing returns.

Are you convinced that the US is still growing?
Are you convinced that the us can continue to grow at a rate commiserate with the spending and debt?
Are you convinced that the infrastructure we've invested in is truly capable of;
a. Sustaining us through this crisis?
b. Ensuring continuity of productivity through this crisis?

If you answered no to "a" or "b", you should probably consider that it doesn't matter what kind of debt we have if we can't service it.
There is a point, a threshold that we've crossed where it doesn't matter how much we make anymore. We simply can never repay our debts and it's only a matter of time before we default on our loans.

It is inevitable. No questions about it.

Cheers,

Aaron

toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Re: Debt to GDP ratio not so dangerous

Using the example of leveraged buy-outs of corporations, I have a question.

For whom is the leveraged buy-out good for?

Are the companies in question really better of with those kinds of debt ratios

 

Let me answer your second question forst: Admittedly, leveraged buyouts are currently not very popular but it's is clear from statistics over decades that: LBO companies create more jobs, are more competitive (and thus retain jobs), are more profitable and are more sustainable than their counterparts which are often public companies with lower debt levels.The reasons are plentyful and too detailed for this forum but in short, it has to do with management focus, commitment and incentivation.

And to anwser your first question: LBOs are good for the company and its employees (see anwser one), its shareholders (who make a killing), aranging banks who earn a killing on fees, the debt investors (who earn juicy returns), and last but by no means least the pension funds (and therfore all ordinary working people) who fund all LBOs!

toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Re: Debt to GDP ratio not so dangerous

Are you convinced that the US is still growing?
Are you convinced that the us can continue to grow at a rate commiserate with the spending and debt?
Are you convinced that the infrastructure we've invested in is truly capable of;
a. Sustaining us through this crisis?
b. Ensuring continuity of productivity through this crisis?

If you answered no to "a" or "b", you should probably consider that it doesn't matter what kind of debt we have if we can't service it.
There is a point, a threshold that we've crossed where it doesn't matter how much we make anymore. We simply can never repay our debts and it's only a matter of time before we default on our loans.

Aaron,

I can't anwser really (a) or (b) because I dont have any data on this but I would intuitivelly say 'no'. But it always matters what kind of debt you have, and especially if you get into the situation where you can't service the debt and approach a default or restructuring. As borrower you only have a negotiating position if you can show that your raised capital (in form of debt) will increase your income in the future at some point and will not be spent on expenditure.

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Debt to GDP ratio not so dangerous

 

"Why not?"

If they weren't printing money like a counterfieter I'd probably not say all that much, maybe I'm jealous I can't do that if I get in over my head.

From a moral standpoint, I personally do not feel it is ethical to make our kids and their kids slaves to debt because we can't manage our way out of a financial paper bag.

toms's picture
toms
Status: Member (Offline)
Joined: Jun 21 2009
Posts: 6
Re: Debt to GDP ratio not so dangerous

From a moral standpoint, I personally do not feel it is ethical to make our kids and their kids slaves to debt because we can't manage our way out of a financial paper bag.

Well, ethics and economy are a tricky business I believe. Is it ethically better to forego consumption now, stop borrowing, slow down our economy, cause job losses and company bancruptcies, family disruption and short-cut education for our children, just to keep our debt ratio at 342% whereby we don't even know if thats a bad ratio. Let me ask you, if you had two options, which would you choose? Options are:

(1) give your kids a good education, give them a nice big home to grow up in, make sure they can develop their talents, consume healthy, high-nutritional food and travel to learn about other cultures. And as a result you have put them on the best platform they can have to start into their adult life with a good chance to have a good life, hopefully even better than yours. You have equipped them with everything they might need to become open minded, mobile, get a good job, compete well in tomorrows society (lets face that!) and be able to pay the taxes they will need to pay, from a salary of a highly qualified executive. In this scenario everybody in society is moaning about too high taxes but overall people are doing better than the generation before them.

(2) stop spending on education of your kids, teach them how to grow vegetables instead, downsize your home, feed them cheap low-nutritional food, stop travel and watch TV instead. As a result, your kids will work in the local supermarket, maybe become the store manager after 15 years, visit the 3 local bars in their spare time, have 20 pounds too much weight, struggle with paying their bills including the tax bill. In this scenario, taxes are low but most people have gone backwards in their generational development and STILL struggle to pay their (albeit lower) tax bills.

Which one would you chose?

Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Re: Debt to GDP ratio not so dangerous

toms,

I hate to break it to you, but our government isn't run by CEOs trying to beat expectations by a penny.  They don't print money in order to increase production, as a company borrows money, they print money to kick the can of unfullfillable promises down the road and make it through the next election cycle. They don't have to show lenders a solid business plan or reasonable expectations to borrow money, they just press, "print".  They don't have to show lenders how production will produce the interests needed to pay the money back, they just raise taxes or press, "print" again. 

I think this analogy is horrible. 

Also, GDP is not the equivalent of production (although it's supposed to be).  We don't even know what the H GDP is anymore since it goes through plastic surgery before being reported these days.  It might make more sense to compare debt to total revenues, i.e., total federal tax revenues, or to compare the interest on the debt to total revenues.

In any case, I choose neither options 1 or 2.  I choose option 3:  Live and produce within an economy that is self-sustaining and not dependent on external borrowing to fuel a lifestyle that is 90% based on consuming crap.  I call our current economy the Seinfeld economy since it is based on nothing.  This has been allowed to develop due to the very thing you seem to think is OK - borrow all our money back from the rest of the world so we can continue consuming even while we produce nothing.  Over 30 years, this has led us to export all our production overseas. 

The buyer in the LBO that will be the end of us is China.  I hope someone makes one giant fat fee on that one - then it will all be worth it, right?

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Debt to GDP ratio not so dangerous

Hello Toms:

Our government CAN'T service it's debt. Even after kicking the can down the road to our kids and to their kids.

I truly don't think a lot of people "get" this.

This is like me getting into a life with a big house and a few fancy cars and putting my little juniors into ivy league schools and charging it all, and telling them, "Hey, when you become a doctor I'll live over the garage and you can have all this and service the debt and maybe even pay it off".

Then one day I realize, oops, I can't even make the minimum payment on all this debt. What do I do? Hmmm, down to the basement, fire up the HP scanner and crank out some funny money and pray to God I don't get caught and tossed in prison, have all "my" possessions taken, then my kids are living with the in laws and I'm doing time.

Right here, right now ---- That is where we are, with one big caveat, it IS legal for Ben to counterfeit money even though there are only two crimes listed by name in the Constitution and Counterfeiting just happens to be one of them.

"If" Ben gets caught YOU, ME, YOUR KIDS, MY KIDS are all TOAST! Toast as in bankruptcy vis a vis devaluation of the US dollar.

Your a or b question may not take this reality into account and therefore I don't feel I can answer it. If you want to work this into your question I'd be happy to re-visit it.

Take care

PS You might want to look at the CBO estimated 1.86T dollar deficit for fiscal 2009 and follow closely the 100bn dollar weekly bond sales which are being held in a lame attempt to service this debt. You might also want to listen to FSN a few weeks ago where they discussed the other big ut-oh's (50% of bond debt comes due within 12 months)

What I'm getting at: I don't think they can kick the can anymore and I think all this is catching up with them, and sadly, us.

 

 

A. M.'s picture
A. M.
Status: Diamond Member (Offline)
Joined: Oct 22 2008
Posts: 2367
Re: Debt to GDP ratio not so dangerous

Toms,

You've got a very modern view of what's productive and what constitutes success.
I'd personally rather have children who were well balanced and educated through practicality and experience than forced into the Ivy League "Study, Test, Forget" mentality on credit.

Furthermore, I had to ask myself "is he kidding?" when I read your supposition that food now is more healthy than it would be if we were to grow our own. Not to condescend, but you're straight out of your mind here, friend.

Everything that's been synthesized to accomodate this unsustainable infrastructure is diminished in terms of quality.
As the population increases, quality will continue to decrease.

If you continue to rely on McDonalds and Supermarkets, you might find less than desirable consequences await you.
If you rely on yourself, the bare minimum is that you work harder. There is literally no other disadvantage, and I'll assume you've never raised your own food, or you'd realize how much better you feel physically when you eat things that are fresh, unpreserved and natural.

We may just have irreconcilable differences of opinions as to where this debt cycle is heading.
Even if we were to entertain your concept that 342% of our GDP is an acceptable "Debt to Income" ration (o.O) if we cannot pay on the principle, the ultimate end is increased debt.
Using your logic, you've got to be able to understand this very simple extrapolation; so, at what point will you say "wait - this isn't good"?
Will it be 5 years from now? 10? Or will you simply line up in the cold, shivering as you wait for bread and cheese at the superdome?
Cheers,

Aaron

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Debt to GDP ratio not so dangerous

Hello all,

Some general points, then specifics.

Toms, your opening statement contains a contradiction so significant, I concluded it could only be a typo or that English is not your native tongue (and I don’t mean that pejoratively, only as an observation) – in which case it wouldn’t represent a flaw in your logic or main point. However, to that point.

In your opening sentence you clearly indicate via the phrase, "one crucial assumption," that Chris’ perceived problem with the Debt-to-GDP ratio is just that: one crucial problem among many – and as Aaron alluded to, many feel that it’s one of the lesser problems in a world of peaking oil production and weakening food capacity. However, two sentences later you use the word "alone," directly contradicting your first sentence.

Since this seems to be your basic point – that the Debt-to-GDP ratio may not be significant/unsustainable and, because of that, the next twenty years may not be different at all – it’s obviously more than germane to know what you are really saying.

I think every poster on here has probably pointed this out, but it’s no small point and needs reiteration – especially so if it’s what you’re basing a more optimistic economical view of the future on.

More specifically, I agree that we don’t know how much debt as a percentage of GDP will really break the economy. I think this is true for several reasons. You and PB spoke of some, but I’ll add this one: because, after all, it’s just "math" – an abstract extrapolation hoping to represent reality but by definition can never really do so with full accuracy and breadth. These computations and measures are just numbers. They partially reflect real problems, but the "reality" of the situation is far more compelling: things like the aforementioned peaking oil production and weakening food capacity.

Now to another issue: Post #10. This is just pure silliness, plain and simple. If the phrase "false choice" ever had a more fitting use, I don’t know of one. When the topic of ethics was brought up by Davos, you responded by basically saying – at least I think you did to some degree – that the only ethical/moral way forward is society’s current trajectory and that teaching children and communities about agriculture (growing fruits and vegetables) will, more or less, produce a society of underachievers.

Some questions based upon the stark contrast set-up by your two options – which appears to be the differences between a world of borrowing and high leverage and a world of more modest debt and consumption -- though they’re essentially rhetorical.

The only way a child can receive a quality education is within a system of massive debt and leverage?

The only way a child can grow up feeling secure, loved, and ready for the future is by living in a "nice, big home" and traveling a lot – presumably there are loving, competent parents somewhere in the mix?

Those who support high Debt-to-GDP levels eat high-quality foods and those, like Davos and myself (probably PB and Aaron too), who don’t, feed themselves and their families food of low nutritional value? (Homegrown’s better by the way.)

Those who support high Debt-to-GDP levels don’t watch that much TV and those who don’t watch detrimental levels?

Those who support high Debt-to-GDP levels are fit as fiddles and those who don’t carry "20 pounds too much weight"?

I mean, this is just pure nonsense, my friend. I got a big whiff of ideology from you on this post.

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: Debt to GDP ratio not so dangerous

Note: Hadn't seen Aaron's Post #13 when I wrote mine.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Debt to GDP ratio not so dangerous

 Hello Toms:

I really wanted to keep this to a debt to GDP discussion, but after I read MaineCoonCat's and Aaron's post I realized there is more to this, perhaps I skimmed your a or b question too quickly.

I would never impose religion, politics or the way of life I selected on anyone. That is their choice. I have several well to do friends, their kids went to Harvard, they have summer homes (that they share.) I'm not bashing their way of life or mine, (I enjoy waking up on the ocean and having nothing to do) . I'm happy in a very small house, I'm happy with my organic garden and food. I'm happy not living out of a suitcase in a hotel 15 nights of the month or going through security 4 times a day. We don't watch TV, we do subscribe to NetFlix. We read a lot. It is a simple life, we have had more, a LOT more, I personally would not go back even if I woke up with 9 figures tomorrow. But that is me. Also, the more I see of schools the more I consider home schooling or sending them back to a private school.

I don't know if "all this" is better. When I was my son's age I had a 12' skiff with a 9.9 HP motor and spent the day on the sound or harbor. Today we don't let kids out of our sight, they have video games, TV, Wiis, Xboxes, computers, iPods, cell phones. Better? Worse? Don't know, I do know it IS different. The one thing I don't want is for your kids or mine to have debt that they may not appreciate. 

When we get into this much debt are we giving our kids any choice as to how they want to live?

If we aren't, is that moral?

Again, I respect your question, and I respect the way a lot of my friends and others choose to live. I personally don't want to impose my kids or anyone elses kids to a world of debt or a planet where every species/resource is in decline (because of humans). But that is just my perspective, and while I may not agree with contrary ones I'm not going to impose my ways on others - BUT - I have to state that this appears to be what the system is rigged to do now.  Take care

RNcarl's picture
RNcarl
Status: Gold Member (Offline)
Joined: May 13 2008
Posts: 382
Re: Debt to GDP ratio not so dangerous

posting is hay wire

Morpheus's picture
Morpheus
Status: Diamond Member (Offline)
Joined: Dec 27 2008
Posts: 1200
Re: Debt to GDP ratio not so dangerous
Farmer Brown wrote:

toms,

I hate to break it to you, but our government isn't run by CEOs trying to beat expectations by a penny.  They don't print money in order to increase production, as a company borrows money, they print money to kick the can of unfullfillable promises down the road and make it through the next election cycle. They don't have to show lenders a solid business plan or reasonable expectations to borrow money, they just press, "print".  They don't have to show lenders how production will produce the interests needed to pay the money back, they just raise taxes or press, "print" again. 

I think this analogy is horrible. 

Also, GDP is not the equivalent of production (although it's supposed to be).  We don't even know what the H GDP is anymore since it goes through plastic surgery before being reported these days.  It might make more sense to compare debt to total revenues, i.e., total federal tax revenues, or to compare the interest on the debt to total revenues.

In any case, I choose neither options 1 or 2.  I choose option 3:  Live and produce within an economy that is self-sustaining and not dependent on external borrowing to fuel a lifestyle that is 90% based on consuming crap.  I call our current economy the Seinfeld economy since it is based on nothing.  This has been allowed to develop due to the very thing you seem to think is OK - borrow all our money back from the rest of the world so we can continue consuming even while we produce nothing.  Over 30 years, this has led us to export all our production overseas. 

The buyer in the LBO that will be the end of us is China.  I hope someone makes one giant fat fee on that one - then it will all be worth it, right?

+50

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments