US Will Hit 94% Debt to GDP Ratio Next Year, Surpassing the Level Where Debt Starts Reducing Economic Growth → Washingtons Blog
US Will Hit 94% Debt to GDP Ratio Next Year, Surpassing the Level Where Debt Starts Reducing Economic Growth - Washingtons Blog

Tuesday, January 12, 2010

US Will Hit 94% Debt to GDP Ratio Next Year, Surpassing the Level Where Debt Starts Reducing Economic Growth

Ambrose-Evans Pritchard notes:

Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt.

The figure of 94% is dramatic given that two top American economists - Carmen Reinhart and Kenneth Rogoff - wrote last month :
The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies...
Indeed, as Forbes noted in December:
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
Deficits do matter.

Note 1: Reinhart and Rogoff also make it clear that the larger the ratio of external to internal debt, the greater the drag on economic growth. The U.S. had a high level of external debt, although the Fed is now covertly monetizing much of the U.S. debt. So I'm not sure what the ratio of external versus internal debt really is at the moment.

Note 2: Fitch's 94% figure includes state as well as Federal debt. I am not sure if this changes the above analysis.


  1. The reference in this article was done by one study, which has yet to be published (it actually says "This DRAFT: December 31st 2009" on the top of the empirical study).

    ONE unpublished study, BEFORE even having a chance to be academically critiqued, is simply both poor journalism and misleading.

    Deficits do matter, and have an effect on growth. But, today, identifying a 'deficit/gdp turning point' is frankly -- nonsense.

  2. It's true that this is based on one study. But it's the ONLY study available! As has been said before, it's typically far better to know something for uncertain than not at all.

    The truth is that crushing debt threatens to undermine the fabric of our economy. Too much stress, in the form of poor leadership, over investment of public funds into places that do not return a positive social benefit, and a lack of emphasis on education and wealth production is taking its toll. We WILL pay the price.

  3. Why would any sane person wait years for a "certified" confirmation when common sense says ACT VERY SOON OR IT'LL BE TOO LATE?

    This is like discovering you have cancer. It's better to find out all information available right now than wait perhaps 20 years and wish you hadn't.

  4. Someone should get a camera crew and take it to Dick Cheney and get his response to the "Deficits don't matter" mantra that he spewed from 2000 - 2008.

    I wonder if he changed his tune yet?

  5. Government gets bigger. Entitlements grow. I don't know if we, the workers and taxpayers, can bail out all this debt.

  6. Let us celebrate May Day, 2 Yo (aka 5/1/2010 A.D.).

    On December 31, 1 Yo (aka 2009 A.D.), the U.S. Debt to GDP ratio was a mere 85.62%. On Tax Day 2 Yo (aka 4/15/2010 A.D.) it was a much heftier 89.39%.

    Keep in mind that, according to Wikipedia, one of the Euro convergence criteria was that government debt-to-GDP be below 60%, it is easy to tell that we have once again trumped Europe at its own game.

    So if 90% is a critical point as the above suggests, as of yesterday OUR Country lacked a mere 0.61% of achieving Washington’s goal of totally bankruptcy. Since the end of last year, this ratio has increased by an average of 0.036% per day. At this rate, the 90% precipice will be tumbled over in about 17 days, around May 1.

    This calculation does not include the billions in new debt currently being bandied about in Con-gress to bail out the Teacher’s Unions or any other no-evidence-of-brains spending scheme OUR misrepresentatives concoct.

    My calculations are based on data I compile from
    National Debt Clock (live) —

    Gill O’Teen
    Today is the day to go for Atlas to shrug!
    Don’t Tread On Me!

  7. Question......When we gonna crash......The car has been spinning around.. when will it hit and kill the bad drivers that are driving our economy on the Highway to Hell?We will be at 91% monday May 10th...

  8. One only needs to look at the chaos in Greece for confirmation that entitlements, out of control spending, and the choke hold that unions have on our corporations, drag our economy to the bottom of the abyss. Our tax structure is punitive, our working class shrinks by leaps and bounds because of entitlement programs, and our government spends as if it never intends on paying the bill. We WILL be bankrupt by spring of 2012, and the riots in our own streets will make the riots in Greece look like a PTA bake sale. Americans will only fight now if threatened with a reduction in the amount of freebies Uncle Sam is handing out. My how the mighty have fallen.

  9. nice information thanks for sharing


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