Tuesday, January 05, 2010

One Problem with "Debt as a Percentage of GDP"

TigerHawk has a post on national debt and how Japan seems to be falling into a pretty big hole. While really an analysis of Japan, it brings up an issue with the U.S. debt that has been bothering me.

Some apologists for the U.S. national debt start off with "yeah, the debt is big, but as a percentage of GDP..."

There is a very big hole in this argument.

While the percentage is supposed to make us feel better, remember that the U.S. economy is the world's largest and 3x larger than number two (Japan). It is bigger than the next three countries combined (Japan plus China plus Germany). So when our debt level reaches 100% of GDP by 2014 (and I think much sooner than anticipated), it will be larger than the entire economies of several top-tier nations combined.

Is there enough wealth in the world to loan us this amount of money? Plus support the debts of all the other large nations whose debt is going over 100%? Plus carry all the other sovereign debt in the world at the national, state and municipal levels?

The absolute number matters.

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