Economic Meltdown (seconda parte)

[kandrathe]

Welcome back to 1937. It wasn't great the first time, and it won't be any better now. I think the debt ceiling debacle has done quite a lot of damage, although more for the deal that was cut (and what it says about the political process) than for any lack of faith in the credit of the United States. US treasury bonds actually *rose*, but stocks crashed - the problem is growth, not confidence in government. Nobody is predicting growth in the face of severe cutbacks during a recession.

Out of curiosity, why is 100% of GDP a threshold? A milestone, maybe, but I've never quite understood why everyone is so comfortable with 90%, yet so panicked by 110%. What really matters is service vs. revenues... right?

-Jester

As I understand the deal, the cuts are loaded out a few years into the future. The debt can increase by some 2 trillion (and we are borrowing 40% of our spending). So, really, we are just slowing the increase in spending and not really cutting back on spending.

If the tax cuts don't expire, the revenue's will increase to 20-21% of GDP by 2020, and higher if they are allowed to expire. But, say you were limited to the historical rate of about 18% of GDP, then on a 14 trillion dollar GDP you'd be raising about 2.5 trillion in revenue. In a normal economy, banks would charge interest for use of their money, and you'd need to curb spending below the 2.5 trillion to ever begin paying down the debt. So, I think the 100% threshold is where it begins to be very hard to ever make headway on paying it down. The previous link says, "In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this map) found the limit in practice when they hit eight-to-ten times GDP."

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