Monday, February 27, 2012

If You Aren't Scared By This, You Aren't Paying Attention

I have heard this mentioned in a rather "let's not get all panicky" sort of way.  This graph from Zero Hedge shows gross domestic product of the United States, and total debt (including, I think, the off-budget Social Security debt):

There's a reason that Wyoming's lower house is proposing contingency plans for the collapse of the U.S. government, and this is one of those reasons.  How long do you think the national debt can continue to grow faster than gross domestic product before everything collapses?  I am not interested in living in a Mad Max world.  Are you?

2 comments:

hga said...

How long do you think the national debt can continue to grow faster than gross domestic product before everything collapses?

It depends. Right now we're the "least worst" place to park your money and that seems to be the reason we've been able to borrow so much money in such a short amount of time.

Of course this perception can change (although given the amounts involved it's not clear there's anywhere else so much money can be stashed). We've passed the 90% threshold beyond which a country pretty much always defaults in one way or another and we're marching smartly forward, it was 100% a few weeks ago and 101% a few days ago.

As for the Mad Max fear, that remains to be seen. We're not Japan, at 230% the last time I checked but with a homogeneous population living under the thumb of a uniquely polite police state (I expect a "hostile takeover" there someday), but I don't think we're Argentina either. Yet. On the 3rd hand, as the biggest economic and military power our fall will have different sorts of effects, something Mark Steyn addresses with his usual flair and generally good accuracy in his latest book, After America.

Epsilon Given said...

Just this Saturday, I attended a meeting with someone running for the Utah Senate, who happens to be a finance professor at a local university. He had an interesting point: Obama's budget or not, there's no way we're going to go into $26 trillion dollars of debt in ten years. We're at 100% GDP-to-Debt ratio right now; if that goes to 130%, our lenders are going to get nervous, and at 150%, no one is going to lend us anything anymore.

Of course, this will force changes in government, and things will get ugly for a while...Wisconsin ugly, or Greece ugly...but at the very least, there are some solid limits to our spending!