4 ms·
> The problem with the greater than 100% Debt to GDP ratio means that, should they decide to stop printing money, they'd immediately go into default on existing
by Denvercoder9 4y ago
> The problem with the greater than 100% Debt to GDP ratio means that, should they decide to stop printing money, they'd immediately go into default on existing debt, regardless of the interest rate.
There's nothing that changes at a 100% debt-to-GDP ratio, and it doesn't have to mean a default. E.g. if the debt has an average yield of 3% and uniformly matures over the next 20 years, even at a 100% debt-to-GDP ratio the yearly cost to service the debt is at most 8% of GDP.
- arcbyte 4y agoTheoretically if every outstanding note called the balance due then default is inevitable. It's not a practical milestone but it's a milestone nonetheless.
- RandomLensman 4y agoNothing to do with debt/GDP. GDP is a flow measure, if you cannot pay back the debt in your example that means the total assets are lower than the sum of debt (otherwise could sell assets). Some countries have more private savings than GDP, for example. (Setting aside that sovereign debt might not have a put option in them to start with).
- colinmhayes 4y agoNo default is not inevitable. Bonds get paid on a schedule, they can’t just “call the balance due”. The government can just keep pushing the debt into the future by buying new bonds as long as the economy grows.
- xmcqdpt2 4y agoThey can’t "call the balance due" though. UK gilts (and most other government bonds) are fixed term and can't be redeemed early.