U.S. Debt-to-GDP ratio just went over 100%


Zerohedge has an article today on the U.S. Debt to GDP ratio crossing the 100% mark. This is a result of a couple of gimmicks at the fiscal year end. (The US Fiscal year runs from Oct 1 thru Sept 30).
Important points –
– Total Debt increase was surprisingly low at $50B for the month of September

– Magically, $93B worth of debt was issued on the first day of October

– US Q2 GDP was revised lower by $20B

– Estimates for Q3 GDP now squarely places the Debt-to-GDP- ratio at 103%.

– Scariest of them all – Debt-to-GDP-ratio is increasing at a rate of 1.5% per month
Talk about being worried about the fiscal cliff which is only expected to impact the debt by about $200B a year.

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8 thoughts on “U.S. Debt-to-GDP ratio just went over 100%

  1. For a rich country like the USA to be so heavily indebted represents the height of mismanagement, and a fundamental preference for political expediency over fiscal responsibility. We need a fresh look at our expenditures and our revenues, we need to honor all our commitments and obligations, and we need to work off a fundamental premise: in the long run we need to generate as much revenue as we need to pay our expenditures. Borrowing to pay long-term capital projects and infrastructure improvements with long term benefits is fine, but borrowing to pay ordinary everyday expected expenses is foolhardy.

    Additionally, all of us have a stake in the operations of the government for defense, roads, dams, health care, and management, and all of us (in concept) should participate in the funding of these expenditures. If as a nation we decide that certain expenditures are needed or wanted, we need to raise enough revenue to pay for them. If that means raising taxes, let’s raise taxes on everyone, it’s the best and fairest way to determine which expenditures we are willing to pay for. I am not saying to tax everyone equally, but it is natural for someone who is not paying for something to consider its consumption affordable.

    Let’s target our debt:GDP ratio to decline from its current 100% to a more affordable 60% over a period of 10 years, achievable by growth in the economy coupled with controlled expenditures and responsible taxation.

    1. Agreed Marc – 60% debt to gdp ratio seems so difficult right now when its increasing at 1.5% EVERY MONTH. And also to think that in 1980, the same ratio was about 30%.

  2. Dear Hari

    Excellent article. Really scarying to know the current position. Will be glad if you inform the reasons as to why it shoot up to this level.

    1. Ravi, the reasons are many. Since 1980, issuance of debt has exploded. Wars, homeland security, profligate spending and most recently, all the bailouts all contribute to this state. Also, the US dollar is the global reserve currency. So when foreign countries (exporters like China, Saudi Arabia, Japan and many others) receive USD for their goods and services. This USD has to be invested somewhere, and preferably in safe investments. This brings all of this USD back to the US where its issued as debt by way of Treasury bonds. With the Euro zone in danger, there is literally no other “safe” avenue for this USD. When this comes back to the US, it gets invested into Treasury bonds, arguably the safest investment in the world, but with little return. This means the willingness to lend to the US government is very high. This is in turn gives our politicians the cockiness to go borrow more. Its a vicious cycle, and won’t stop until foreign lenders say “enough is enough – no more”. But this puts their existing loans in trouble, so they can’t really say NO. And so the music plays on….

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