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There has been much alarm in the media about the prospect of the US national debt-to-annual-GDP ratio surpassing the 100% threshold. The implication is that “100%” is not just an arbitrarily chosen number, but rather that it has some special significance in this case.
But is that true? Would there be any economic effects on Americans that are qualitatively different from the value of this ratio surpassing any arbitrarily chosen constant? Like 99%? Or 101%?
I have never seen any of these writers even hint at a rational reason for their belief. They treat it as if it were obvious. I think the reason they don’t bring it up is that they have never given it a moment’s thought, and that the proposition is absurd.
Our federal government’s finances have long been recklessly managed—excessive expenditures in relation to the citizens’ ability to pay for them—and that fact has already been causing us increasing harm and exposing us to greater risk. The danger and harm increase smoothly and continuously with every incremental change. We are not suddenly approaching a magical value for the ratio.
Discussion (23)
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The effect would be re-election for whoever increased spending to that level.
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If an individual takes out a loan greater than his annual income, is it a financial disaster? It depends upon a number of things. I'm no economist, but Mark's last sentence seem reasonable when you look at it this way.
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Income and wealth are two different things. Collateral is more important than income, provided you have enough income to service the debt.
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This is a principle of banking that has been significantly discarded apparently because it requires too much work within a competitive business environment. In today's market this problem is overcome by consolidation to monopoly levels so pricing of services or products can cover performance deficiencies.
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