30 May 2010

Debt:GDP and the Future

(BMG: back from conferences and a short research trip, and returning to the blog for awhile; posting will be irregular through the end of June and will then pick up again).

According to the US National Debt Clock, the Debt to GDP ratio (converted to a percent of GDP) now exceeds 90%.  This is the largest Debt:GDP we have been at since the close of WWII and the largest ever peacetime ratio in our history.  The debt exceeded $13-trillion last week, and there is no sign that the rate of increase will slow anytime soon.  These values were projected by the CBO upon submission of the President's 2011 budget back in March, and are now exceeded even before the budget takes effect.  The dramatic increase in debt is accompanied by an aging population, and a subsequent decrease in government income regardless of any raises in tax rates.  To avoid following the path that southern and eastern Europe is now on, and which northern and western Europe may soon follow, a dramatic decrease in spending and services is necessary over the next five to ten years.

Those kind of tough decisions, however, are beyond this Congress and President (and beyond any for the previous thirty years).  'The End Game Draws Nigh,' an examination by Dr. Woody Brock of divergent paths to economic growth and slowing, places particular emphasis on macroeconomic trends in successful versus failed economic policies.  Most particularly, a high Debt:GDP value is a major indicator that a long-term economic slow-down is occurring or is imminent.  We can stick our head in the sand, but that will just leave our collective butt exposed.  We must demand tough decisions from our leaders, or we must find leaders who can make those decisions.  Without them, we're all going to be suffering for many more years.
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