2 ms·
100% debt to GDP is a meaningless milestone. Debt is cumulative and has a built-in maturity timeline whereas GDP is a snapshot. Debt service is relative the int
by tootie 4y ago
100% debt to GDP is a meaningless milestone. Debt is cumulative and has a built-in maturity timeline whereas GDP is a snapshot. Debt service is relative the interest rate and rates have been so low for so long that debt service has simply not been burdensome even at large volumes. Rates are rising now but still fairly low. It's likely time to slow down debt growth but the current accumulation isn't really worrisome.
https://fred.stlouisfed.org/graph/?g=UtFK https://fred.stlouisfed.org/graph/?g=UtFK
- opportune 4y agoSure, I picked that ratio because it makes reasoning easy since then interest rates = percentage of GDP. My point is precisely that it only works when rates are low. When rates need to go higher you can’t spend so much of your tax base on servicing debt without bad things happening. You cannot simply let the debt mature because it gets refinanced at the current rate unless you’re running a budget surplus to reduce the principal (which is generally considered unwise compared to growing/inflating out of it). Rates don’t stay low forever