Debt to GDP surpasses 101%.
http://www.zerohedge.com/news/us-debt-gdp-passes-101-global-debt-ponzi-enters-its-final-stages
To infinity and beyond!
No need to worry. You see GDP is in Money /time, and debt is just in money.
The ratio ends up having a unit involving only time, so its meaningless. That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.We should remember this from high school science: always pay attention to units of measurement. Get the units wrong and you are totally befuddled.
If economists did not habitually annualize quarterly GDP data and multiply quarterly GDP by four, Greece’s debt-to-GDP ratio would be four times higher than it is now. And if they habitually decadalized GDP, multiplying the quarterly GDP numbers by 40 instead of four, Greece’s debt burden would be 15%. From the standpoint of Greece’s ability to pay, such units would be more relevant, since it doesn’t have to pay off its debts fully in one year (unless the crisis makes it impossible to refinance current debt).
The fundamental problem that much of the world faces today is that investors are overreacting to debt-to-GDP ratios, fearful of some magic threshold, and demanding fiscal-austerity programs too soon. They are asking governments to cut expenditure while their economies are still vulnerable. Households are running scared, so they cut expenditures as well, and businesses are being dissuaded from borrowing to finance capital expenditures.The lesson is simple: We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial – and often irrelevant – constructs that they are.
Yeah, and
all those studies showing a direct correlation between that "meaningless ratio" and economic problems are just prattle , because I don't multiply the GDP by an arbitrary factor, and I think a quarter is a fourth and therefore multiple quarterly numbers by 4 if I want to estimate an annual number. What I dummy am I! Thanks for the correction professor!
Yes, I am sure an ratio of GDP to "annual principle and interest due" would yield a similar result and have "the right units" -and have an even stronger correlation, but that data isn't readily available in most cases - especially when you are doing surveys covering economic events over hundreds of years. And this guy is a professor at Yale. The problem is that clever people are also usually very clever at rationalization, and will stick to spewing crap like this so they can dismiss data rather confront the fact that the data shows them to be totally wrong. Go ahead prof, divide by 4, and the ratio where you will be in trouble will become divided by 4 as well, and you will still be in trouble when you reach it. Likewise, multiply the number by 40, and the ratio where you are in trouble will also be multiplied by 40. Go on you Yale certified moron, tell me why that has significant impact if I am trying to figure out when debt levels lead to calamity?
But wait, the real problem is people, not listening to your infinite wisdom
What is really happening in Greece is the operation of a social-feedback mechanism. Something started to cause investors to fear that Greek debt had a slightly higher risk of eventual default. Lower demand for Greek debt caused its price to fall, meaning that its yield in terms of market interest rates rose. The higher rates made it more costly for Greece to refinance its debt, creating a fiscal crisis that has forced the government to impose severe austerity measures, leading to public unrest and an economic collapse that has fueled even greater investor skepticism about Greece’s ability to service its debt.
You see, you should let us borrow more because we are just sure that will work. The problem is the people who are paying enough attention to realize that, at some point, growth in public revenues won't be able to keep up with interest payments and further borrowing. Its like they can do math or something! And because those silly equations indicate that this simply can't keep on, without cuts in spending, they panic, instead of relying on the opinions of Ivy league blowhards that reality and math don't matter.
