3 ms·

The dimensionless %age terminology is misleading (hence the Kalecki quote) but I agree standard: it would make the difference in kind clearer to give this in te

by chalst 6y ago

The dimensionless %age terminology is misleading (hence the Kalecki quote) but I agree standard: it would make the difference in kind clearer to give this in terms of time, say days, but I am not going to object every time I see this. But to use metaphors like saying a class of debt "makes up" GDP is magnifying the confusion and not the kind of thing a financial journalist should be writing.

cs702 6y ago
> The dimensionless %age terminology is misleading These ratios are not percentages; they're measured in years = [balance in dollars] / [flow in dollars / year], by convention. In the case of households, debt/income gives you a rough estimate of how many years of income it would take to pay all debt, with everyone understanding that not all income can go to pay debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of businesses, debt/EBITDA gives you a rough estimate of how many years of operating cash flows would take the company to pay all debt, , with everyone understanding that not all operating cash flow can go to service debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of governments, debt/GDP it gives you a rough measure of how many years of output the entire economy would have to produce to match the balance of public debts, with everyone understanding that economic output can never be taxed at 100%. The ratio is a rough measure of debt service capacity, measured in years.
- chalst 6y ago
  In journalism, things like price/earnings are usually given dimensionlessly, even in quality newspapers like the FT. E.g., Tesla was a red-hot stock even before the coronavirus crisis, boasting a forward price/earnings ratio — a common measure of the value the market puts on a business’s future profits — of 75 times at the start of 2020. in https://www.ft.com/content/0158a15b-52e7-4270-9ab3-4f6934b931c3 https://www.ft.com/content/0158a15b-52e7-4270-9ab3-4f6934b93...

by chalst 6y ago

cs702 6y ago

> The dimensionless %age terminology is misleading These ratios are not percentages; they're measured in years = [balance in dollars] / [flow in dollars / year], by convention. In the case of households, debt/income gives you a rough estimate of how many years of income it would take to pay all debt, with everyone understanding that not all income can go to pay debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of businesses, debt/EBITDA gives you a rough estimate of how many years of operating cash flows would take the company to pay all debt, , with everyone understanding that not all operating cash flow can go to service debts. The ratio is a rough measure of debt service capacity, measured in years. In the case of governments, debt/GDP it gives you a rough measure of how many years of output the entire economy would have to produce to match the balance of public debts, with everyone understanding that economic output can never be taxed at 100%. The ratio is a rough measure of debt service capacity, measured in years.

chalst 6y ago
In journalism, things like price/earnings are usually given dimensionlessly, even in quality newspapers like the FT. E.g., Tesla was a red-hot stock even before the coronavirus crisis, boasting a forward price/earnings ratio — a common measure of the value the market puts on a business’s future profits — of 75 times at the start of 2020. in https://www.ft.com/content/0158a15b-52e7-4270-9ab3-4f6934b931c3 https://www.ft.com/content/0158a15b-52e7-4270-9ab3-4f6934b93...