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The one I dislike is the debt-to-GDP ratio. A year or two there was a lot of talk about the US being dangerously close to having debt at 100% of its GDP. That s

The one I dislike is the debt-to-GDP ratio. A year or two there was a lot of talk about the US being dangerously close to having debt at 100% of its GDP. That sounds scary, if you don't or can't think about it too hard - like the US literally can't have the money to pay its debts, and it's only a matter of time before its creditors realize that and make it sell Alaska. But debt is counted in dollars, and GDP in dollars per year, so crossing 100% just meant adding a few days to the time it would take the US to pay back its debts. It's now at around 104% - or, more meaningfully, around 380 days - and nothing much has changed.

IshKebab 8y ago
That comparison is fine. Divide $ by $/day and what do you get? Days. The number of days of production that the US is in debt. That's a perfectly reasonable thing to measure.
- dmurray 8y ago
  Right, it's good to measure it, and express it as "355 days". Not so good to run breathless articles about how it's "almost at 100%".
- dredmorbius 8y ago
  This presumes quantity of currency is nonfungible
jorvi 8y ago
I think one of the bigger problems is people conflate government debt with personal debt. If you loan money to build a house, you eat the interest costs. But if the government loans money to build a bridge, that money flows into the economy creating jobs. As long as the growth that loaned money creates outpaces interest, the government would he stupid not to loan. Not to mention the absolute safest governments to 'stash' your money (The Netherlands and Germany come to mind) actually pay negative interest rates on some of their bonds.
- dmurray 8y ago
  It's not really all that different from borrowing to improve your personal money flow. Borrow for a house to decrease the amount you spend on rent, borrow for a car to commute to your job and earn more money, take a student loan to get a higher paying job in the future. Of course, both governments and individuals can make bad decisions or get unlucky, and the government has more negotiating power if it has trouble repaying the loan. But on some level you can be "stupid" not to borrow money if the return to your personal finances outpaces the interest.
  - jorvi 8y ago
    Sure, though part of my point was that if you loan money to build a house the money flows from your pocket into the pocket of the timber salesman and electrician. But if the government loans money via bonds and then builds a bridge, that money mostly stays inside the country, where it is both taxable and will contribute to the GDP.
  - crdoconnor 8y ago
    >It's not really all that different from borrowing to improve your personal money flow. Borrow for a house to decrease the amount you spend on rent, borrow for a car to commute to your job and earn more money, take a student loan to get a higher paying job in the future. Of course, both governments and individuals can make bad decisions or get unlucky, and the government has more negotiating power if it has trouble repaying the loan. How exactly would a government that prints USD have trouble repaying a loan denominated in USD? It's not only impossible for a government to not be able to pay back a loan in its currency - it has pretty much full control over the interest rate (it can be pushed down with QE at will). If the government wants to borrow at 0.1% it can - and the US government apparently does. The only countries that have defaulted or come close to defaulting on their loans are countries that borrowed in a currency they didn't print (Zimbabwe->USD, Greece->Euro) or countries that unilaterally decided "fuck it, most of our debt is owned by foreigners, let's just not pay them" (Russia).
    - dmurray 8y ago
TheCoelacanth 8y ago
Debt-to-GDP ratio is a reasonable measure to use. Giving any special significance to 100% is the problem. It's similar to debt-to-income ratio that creditors look at. A debt-to-income ratio of 100% is considered fine as long as it is low interest. Someone with a $100k mortgage on a $100k income is in great shape, they could actually afford a much larger mortgage.
- ars 8y ago
  > Debt-to-GDP ratio is a reasonable measure to use. Giving any special significance to 100% is the problem. The mistake is forgetting the units. Debt is in Dollars, GDP is Dollars/Year. That makes Debt-to-GDP ratio have the units of Time, not percent.
qaq 8y ago
The other consideration FED and other gov. entities hold a sizable % of the debt. Which creates some BS accounting e.g. FED collects interest than transfers it's back. The danger is FED acting not so much to control the money supply as backstopping government and acting as buyer of "last resort" if there are no other takers for the debt.

IshKebab 8y ago

That comparison is fine. Divide $ by $/day and what do you get? Days. The number of days of production that the US is in debt. That's a perfectly reasonable thing to measure.

dmurray 8y ago
Right, it's good to measure it, and express it as "355 days". Not so good to run breathless articles about how it's "almost at 100%".
dredmorbius 8y ago
This presumes quantity of currency is nonfungible

jorvi 8y ago

I think one of the bigger problems is people conflate government debt with personal debt. If you loan money to build a house, you eat the interest costs. But if the government loans money to build a bridge, that money flows into the economy creating jobs. As long as the growth that loaned money creates outpaces interest, the government would he stupid not to loan. Not to mention the absolute safest governments to 'stash' your money (The Netherlands and Germany come to mind) actually pay negative interest rates on some of their bonds.

dmurray 8y ago
It's not really all that different from borrowing to improve your personal money flow. Borrow for a house to decrease the amount you spend on rent, borrow for a car to commute to your job and earn more money, take a student loan to get a higher paying job in the future. Of course, both governments and individuals can make bad decisions or get unlucky, and the government has more negotiating power if it has trouble repaying the loan. But on some level you can be "stupid" not to borrow money if the return to your personal finances outpaces the interest.
- jorvi 8y ago
  Sure, though part of my point was that if you loan money to build a house the money flows from your pocket into the pocket of the timber salesman and electrician. But if the government loans money via bonds and then builds a bridge, that money mostly stays inside the country, where it is both taxable and will contribute to the GDP.
- crdoconnor 8y ago
  >It's not really all that different from borrowing to improve your personal money flow. Borrow for a house to decrease the amount you spend on rent, borrow for a car to commute to your job and earn more money, take a student loan to get a higher paying job in the future. Of course, both governments and individuals can make bad decisions or get unlucky, and the government has more negotiating power if it has trouble repaying the loan. How exactly would a government that prints USD have trouble repaying a loan denominated in USD? It's not only impossible for a government to not be able to pay back a loan in its currency - it has pretty much full control over the interest rate (it can be pushed down with QE at will). If the government wants to borrow at 0.1% it can - and the US government apparently does. The only countries that have defaulted or come close to defaulting on their loans are countries that borrowed in a currency they didn't print (Zimbabwe->USD, Greece->Euro) or countries that unilaterally decided "fuck it, most of our debt is owned by foreigners, let's just not pay them" (Russia).
  - dmurray 8y ago

TheCoelacanth 8y ago

Debt-to-GDP ratio is a reasonable measure to use. Giving any special significance to 100% is the problem. It's similar to debt-to-income ratio that creditors look at. A debt-to-income ratio of 100% is considered fine as long as it is low interest. Someone with a $100k mortgage on a $100k income is in great shape, they could actually afford a much larger mortgage.

ars 8y ago
> Debt-to-GDP ratio is a reasonable measure to use. Giving any special significance to 100% is the problem. The mistake is forgetting the units. Debt is in Dollars, GDP is Dollars/Year. That makes Debt-to-GDP ratio have the units of Time, not percent.

qaq 8y ago

The other consideration FED and other gov. entities hold a sizable % of the debt. Which creates some BS accounting e.g. FED collects interest than transfers it's back. The danger is FED acting not so much to control the money supply as backstopping government and acting as buyer of "last resort" if there are no other takers for the debt.