Debt

The dunderheads in the legislative branch are arguing about raising the debt ceiling again. The US is $8.2 trillion in debt -- only about half of that is actually publicly owned, the rest is IOUs from government agencies to another (Social Security) government agency. Those dastardly foreigners own around $2.2 billion worth.

I know, sounds like a lot of money. But in a $12 trillion economy, it's only around 65% of the yearly US economic output. Many other nations are in far worse shape (I note that Japan is at 170%!). The historical US peak was at the conclusion of WW2, when the US debt was 145% of GDP.

A far better measure of indebtedness is GDP to debt ratio, as noted above. It's far more acurate to look at the ability to service our debt than it is to look at the raw numbers. A number is jsut a number without the context. A family making $20k a year that is $5k in debt is in far more trouble than one making $90K. And unlike our typical family, the government can rollover its debt -- it can isssue a new bond when an old one comes due.

So while the raw number is dizzying, the ability of the economy to service the debt grows as the economy grows, at least so long as growth is faster than the rate of increase in the debt. Historically, the debt has grown 84% since WW2 in infaltion adjusted terms, but the economy has grown 5 times as fast -- 429%.

Even more importantly, as the economy grows, the tax reciepts required to service the debt grows as well. The ratio of tax receipt growth to debt growth currently is declining as well -- receipts are growing at nearly 15% and the debt is growing at around 8%. The percentage of tax revenues required to service the debt has thus declined from14% in 1998 to around 9% today and been essentially flat since 2002.