Re: For Trucker

> These are nominal debt numbers, and they include intergovernment debt.
> -Nominally, the US did not reduce its debt the way you claimed after
> WWII. You were comparing apples to oranges.
> -Mr. Hummel was explicitly discussing publicly held debt, not
> intergovernmental debt.
> -You linked our increase in debt to our trade imbalance. Only external
> debt can be so linked, since intergovernment debt cannot be sold to our
> trading partners.

> I suggest that you measure government debt against economic growth.
> The larger the economy, the less of a burden each dollor of debt is.
> However if you must refer to it in nominal numbers, not even adjusted
> for inflation, you really oughta use the same measures in all of your
> discussion.

There are two critical points in this discussion: should we use
nominal debt numbers at all and should we include intergovernment debt
in the national debt.

The web site I sited did use nominal numbers at times. I think there
is a good reason for it: when a nation has import deficit and continues
to pile up budget deficit, the debt/GDP no longer means much, just
control the debt (using nominal number is fine). The national debt
clock
(http://www.brillig.com/debt_clock/) is established in such spirit.

The GDP does not always reflect the ability to pay back the debt. If
a family makes 1 million a year and an expense ratio of 105% of income,
his ability to pay back his debt of 10% is no better than a family who
makes $80,000 a year with 10% debt but has expense of only 50% of
income. Just ask Mike Tyson where his money went.

In other words, debt/GDP is only one method to measure the debt, it
does not reflect the ability to pay back the debt. At 1945, the
debt/GDP was 1.14 but the ability to pay back the debt is far greater
than 2005. The debt/GDP does not reflect this fact.

There are several simple methods to gauge a nation's ability to pay
back the debt: (1) The rate of reducing the debt. After 1946, the
debt/GDP is slowly reduced, correctly reflecting the US dominance in
technology. From 2001-2005, the debt is steadily increased, correctly
reflecting the loss of US dominance in the world. (2) The export
surplus. External debt is more critical than the internal debt because
a nation cannot tax another nation's government, and the import deficit
does not always flow back while internal debt is circulating in the
nation to create more tax. Therefore not only we should include
intergovernment debt in the national debt, we should pay special
attention to it.

To include the ability to pay back debt into the measurement,
instead of relying on debt/GDP alone, we need to use
debt/budget_surplus, or debt/export_surpus, or rate_of_change of
debt/GDP as supplementary indicators. For example, we had a positive
rate_of_change of debt/GDP at 1945 but a negative number at 2005.

Comparing debt/GDP of negative debt/export_surplus with a one of
positive debt/export_surplus is quite meaningless. The main spirit of
my article is exactly that debt/GDP does not mean much when we have
budget deficit - the rate of reducing/increasing the debt means more.

.

Relevant Pages

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