What if US GDP to Dept ratio reached 159%

What do you guys think will happen if US dept to GDP ratio reach the heights of 159%. Right now the ratio is around 90% - 100%. This is still stable grounds, but with the way things are going, the ratio is only gonna rise.

From my ignorant point of view, the higher the ratio, the slower the economic growth which means more loans and extra payments of interest. This could even lead to negative GDP growth rates like the 2009 scenario (correct me if I'm wrong, hence I'm speaking out of ignorance).

In 2009 the GDP growth rate dropped to -3.6% (the next year it increased to 3.30% due to the injection of trillions of dollars in the economy). Did the injection help? That is to be seen this year, will the GDP growth stay around 2 - 3% or will it slow down due to overwhelming spending on wars and the necessary payment of interest which has stacked up, not to mention the important services within US. The US government is still to decide where to cut the big chunks from but the decision still hasn't been made. This even lead to the shut down of a state government for over two weeks:

(Reuters) - Minnesota entered its second week of a government shutdown on Friday with no new top level budget talks scheduled among political leaders, and some experts said the impasse could last a month or more.

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--Some graphs which shows what the future holds regarding GDP to Dept ratio--

we decided to project what the US debt-to-GDP ratio would look like, assuming two scenarios for US growth: a baseline 2% annual GDP growth until 2020, and an upside 2.5% growth rate. The results are not pleasant. In the base case, we see US Debt/GDP hitting 159% by 2020. In the upside case, this number is a much more "bearable" 154%. Surely these numbers merit a AAA rating by the rating agencies.

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[atsimg]http://files.abovetopsecret.com/images/member/2e12755f50ce.jpg[/atsimg]
(sorry, the picture is too big, maybe someone can tell me the code for scroll)

The chart below demonstrates the difference between cumulative deficits over the past 43 monthly periods, superimposed on the total debt issuance over the same period. As is plainly evident, the two lines diverge rather rapidly.

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[atsimg]http://files.abovetopsecret.com/images/member/407d4e4a903d.jpg[/atsimg]
(sorry, the picture is too big, maybe someone can tell me the code for scroll)

--GDP to dept ratio from 1800 to 1990--

[atsimg]http://files.abovetopsecret.com/images/member/6fa51750189f.png[/atsimg]

--Historical GDP to Dept Ratio spike lead to WWII, now leading to WWIII--

This is interesting because this shows the previous spike, guess when the previous spike was? Yes, right in and around WWII. So it could be argued that we are heading towards WWII, infact some argue it is already at its beginning phases.

[atsimg]http://files.abovetopsecret.com/images/member/2b9204cdf0c8.jpg[/atsimg]

reply to post by confreak


I think you mean GDP to debt ratio, not "depth". If I'm not mistaken most countries go bankrupt at a ratio of 120%. One thing I've noticed is that the debt to GDP ratio seems to go up very slowly. So slowly, that it could be two decades before the US reaches the 120% death mark. Of course before that point the dollar could break down. But, the 100% mark is a sign of upcoming bankruptcy. It would be interesting to know how many countries avoid default after hitting the "death bell" of 100%, which the US will likely hit within a year from now.

Originally posted by civilchallenger
reply to post by confreak

 

I think you mean GDP to debt ratio, not "depth". If I'm not mistaken most countries go bankrupt at a ratio of 120%. One thing I've noticed is that the debt to GDP ratio seems to go up very slowly. So slowly, that it could be two decades before the US reaches the 120% death mark. Of course before that point the dollar could break down. But, the 100% mark is a sign of upcoming bankruptcy. It would be interesting to know how many countries avoid default after hitting the "death bell" of 100%, which the US will likely hit within a year from now.

The graphs show that it has been increasing pretty rapidly, and the data in those graphs are derived from government sources.

I'm not an economic expert, but I do try to understand. You are right about the bankruptcy, some claim US is already bankrupt. What do you think would happen if the dollar breaks, or looses its value? Wouldn't that effect US's ability to gain more debt, because US will be forced to pay its debt back with lower currency. In that sense foreign investors would most likely increase the interest rates on their loans, at least that is what I read in one of economic articles.

If that really happen, economy will be in very very bad situation.
But it would depends on type of spreading of domestic product and the type of debt itself.
Basically it will give lots of burden to national budget and how to inject the budget shortness and from where with what kind of agreement.
In the other side, national income will be push into higher amount and it might lead to high cost economy and raise of tax.
When this happened, negative side of domino effect will start and it will make micro economy more suffer.

Originally posted by confreak

The graphs you posted appear to be cut off for me unfortunately. But it looks to be at least 2015 before the debt-GDP ratio hits 120% even on your charts. People constantly are saying hyperinflation is just around the corner, and are constantly wrong about that. Just like the people who are saying the economy rebound is just around the corner. No, the economy isn't rebounding any time soon. And no, hyperinflation isn't coming any time soon.

Japan has a debt-GDP ratio of about 200% and they don't have hyperinflation yet.

I believe the single most important indicator letting you know the general well-being of an economy is the government-private spending ratio. In the US the government-private spending ratio has absolutely soared to 46.7% according to USdebtclock.org.

I'm not an economic expert, but I do try to understand. You are right about the bankruptcy, some claim US is already bankrupt. What do you think would happen if the dollar breaks, or looses its value? Wouldn't that effect US's ability to gain more debt, because US will be forced to pay its debt back with lower currency. In that sense foreign investors would most likely increase the interest rates on their loans, at least that is what I read in one of economic articles.

I don't know if I'd call myself an expert either, but I'm at least a novice. Bankruptcy means more than one thing. The US is bankrupt in that it has no ability to pay all of its obligations and therefore will default at some point in the future. However, the US is not bankrupt in that it has not yet defaulted. Bankruptcy also has a legal definition as well which I really couldn't care less about and don't give any attention to. By the legal definition the US is not bankrupt until "the government tells you its bankrupt". LOL.

When I'm talking about the US economy I always use the term "default". That word means you have failed to pay a debt at the time it became due to be paid. And yes of course people will generally stop loaning money to the US after it defaults on its debts except for loans at astronomical interest rates, which of course will not be paid back either. I imagine they'll issue new debts with first priority for pay-back at some point to keep their line of credit going, but that is just speculation.

What would happen if the dollar breaks or loses value? All hell would break lose I would guess. It can take months or years for a currency to become completely useless after hyperinflation has begun. The Zimbabwe currency took five years to become entirely worthless. To see a reasonable worst-case scenario take a vacation to Zimbabwe and see common ways of living there. I'm fairly sure there have been no serious studies I'd be willing to accept about when the US dollar will hyper-inflate and some main side effects. Shadowstats.com released a report and I thought it was ridiculous with the time-frame. It turned out to be extremely wrong.

So, you'll have to study the issue on your own if you want to get a serious idea of what will happen and when. Countries fully recover from hyperinflation eventually. Take another vacation to Germany to see a reasonable recovery. And take a final vacation to Hong Kong to see how a capitalist economy goes. But of course Hong Kong is not fully capitalist.