3 ms·

What is an acceptable debt-to-GDP ratio? Is over 100% acceptable in terms of ability to pay? I would have assumed that if that was your only metric, that the

What is an acceptable debt-to-GDP ratio? Is over 100% acceptable in terms of ability to pay? I would have assumed that if that was your only metric, that the US at 122% would be far past your acceptable line.

dmurray 2y ago
Debt and GDP are measured in different units (dollars, and dollars per year) so talking about a "debt-to-GDP ratio of 100%" is misleading because it sounds like there's some kind of threshold there. In fact a debt-to-GDP of 12 months or 14 months has no more special significance than the debt reaching 50 trillion dollars or your car reaching 100,000 miles.
kube-system 2y ago
There's some concern that the US is playing with fire at the current ratio. However, Japan is now over 200% has been over 100% for 23 years. Despite their debt, investors aren't too worried about not getting paid. There's not really a hard and fast rule at which it becomes a problem, it is up to investors to decide. The total economic situation, monetary policy, and geopolitical situation will matter more than just the debt-to-GDP ratio. That ratio is mostly useful for comparing a country to itself over time.
- pclmulqdq 2y ago
  I would not suggest using the Japanese bond market as an example: Japanese bonds are pretty much exclusively owned by the BoJ and private Japanese banks, and they generally do this for mechanistic reasons. Basically everyone who can choose not to buy Japanese bonds is not buying Japanese bonds. US bonds are not currently in the same place because it's hard to figure out who is in a much better position. The US has the guns and the petrodollar (although that is ending), and many other countries are in a more precarious economic and political position (thanks to Russia). However, there is no question that position would be better if the US had half its national debt.

3 ms·

What is an acceptable debt-to-GDP ratio? Is over 100% acceptable in terms of ability to pay? I would have assumed that if that was your only metric, that the

by pclmulqdq 2y ago

dmurray 2y ago
Debt and GDP are measured in different units (dollars, and dollars per year) so talking about a "debt-to-GDP ratio of 100%" is misleading because it sounds like there's some kind of threshold there. In fact a debt-to-GDP of 12 months or 14 months has no more special significance than the debt reaching 50 trillion dollars or your car reaching 100,000 miles.
kube-system 2y ago
There's some concern that the US is playing with fire at the current ratio. However, Japan is now over 200% has been over 100% for 23 years. Despite their debt, investors aren't too worried about not getting paid. There's not really a hard and fast rule at which it becomes a problem, it is up to investors to decide. The total economic situation, monetary policy, and geopolitical situation will matter more than just the debt-to-GDP ratio. That ratio is mostly useful for comparing a country to itself over time.
- pclmulqdq 2y ago
  I would not suggest using the Japanese bond market as an example: Japanese bonds are pretty much exclusively owned by the BoJ and private Japanese banks, and they generally do this for mechanistic reasons. Basically everyone who can choose not to buy Japanese bonds is not buying Japanese bonds. US bonds are not currently in the same place because it's hard to figure out who is in a much better position. The US has the guns and the petrodollar (although that is ending), and many other countries are in a more precarious economic and political position (thanks to Russia). However, there is no question that position would be better if the US had half its national debt.