US debt approaches danger zone

March 9, 2010

The CBO analysis of the Obama budget finds that America’s debt-to-GDP ratio will hit 90 percent in 2020. Uh-oh. Research by Ken Rogoff and Carmen Reinhart finds that level to be problematic:

We study economic growth and inflation at different levels of government and external debt. … Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.)

Me: It is the apparent WH belief that debt is a long-term problem only. But the R&R research warns that the rush to implement liberal spending priorities today risks sacrificing growth and a rising standard of living tomorrow.

8 comments

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Defficit is a direct result of war spendings and unregulated markets and their bailouts not due to spending on policies that help alleviate poverty hunger and unemployment/underemployment.

Posted by cosmicinsight | Report as abusive

Wow, this is a shocker. We are heading to Banana Republic status in ten years. 25% real unemployment is going to create a lost generation of workers

Posted by Storyburn | Report as abusive

Comicinsight get a clue- war costs are only a fraction of entitlement spending costs. If we cut out all the pork and brought the troops home we would still be deeply in the red. If we pass the trillion dollar health care plan we tack on 1/3 of the growing entitlement spending that is sucking the nation dry.

This is the problem. We want to support the masses but we dont have the resources to create sustainable programs to accomplish those goals without robbing the economy from future earnings and growth, which further erodes real employment opportunities.

Do we spend for the short term to help 15% of the population. Or do we make the necessary cuts today to improve lives and growth prospects for all Americans in the future? This is the trade off. Think about it. Choose wisely.

Posted by Dr. Savage | Report as abusive

comicinsight-
The wars add to the deficit. The bailouts added to the deficit. Instead of trying to improve the situation, the current administration is continuing to add to it. This is a bipartisan problem.

Its all about the entitlements. They break company’s, they break states, and they are about to break the Fed gov. These entitlements need to be totally revised.

While it is nice to have a pension or medicare, can we still afford it? While I was never a big proponent of privatizing social security, maybe it should be spun off somehow like the pension and health plans at the major automakers. We cannot maintain the status quo much longer. Health insurance reform will only help incrementally. The whole system needs to be modified.

When Roosevelt developed SS in the 30′s, the average life expectancy was below the payment threshold. If anything is going to be done, at the very least the benefit age should be raised yearly or in step with the average life expectancy.

There is no easy solution, and any solution will hurt someone. We should be focused on our future and the greater good.

Posted by Lucidone | Report as abusive

This snippet ties up to nothing.

Debt is about servicing interest payments.

Debt traps is about not being able to service both capital and interest.

‘US debt approaches danger zone’ – I don’t believe any of this anymore, the US is being bankrolled to the (NFL)end zone daily, it should have folded long ago.

I have never read so much about healthcare in my life. Something of somebody must be very ill.

Posted by Gandhiolfini | Report as abusive

This snippet ties up to nothing.

Debt is about servicing interest payments.

Debt traps is about not being able to service both capital and interest.

‘US debt approaches danger zone’ – I don’t believe any of this anymore, the US is being bankrolled to the (NFL)end zone daily, it should have folded long ago.

I have never read so much about healthcare in my life. Something or somebody must be very ill.

Posted by Gandhiolfini | Report as abusive

Remember Ross Perots,’that huge sucking sound”, well this time it’s Entitlements,that is sucking the Life out of America.

Posted by steve | Report as abusive