http://www.nytimes.com/2013/03/31/busin … f=business
According to George W. Bush's economic adviser, Gregory Mankiw, our national goal should be a "sustainable" national budget deficit, not elimination of the deficit. He defines a "sustainable" deficit as one that will not leave the country "too vulnerable when the next catastrophe (war or recession) strikes."
From a microeconomic (business) standpoint, sustainable is whatever is necessary to do the financing of your sales. If it takes 6 months to manufacture something and linear accumulation of value is assumed, then 3 months of revenues would be allowed for sustainable debt. For a pizza baker who is buying, making and selling on a day to day period, this would mean only 1 day of revenues in debt, however add investment minus depreciation and you get the picture.
I am no economist, but i think common sense applies to the macroeconomic side as well. There revenues are the GDP. We have to figure out how much of GDP is associated to Government. Lets make it 40% of GDP. Now public hand has to finance a lot of services and capital investment.While services are good for lets say a 4 month period and make up 75% of spenditure, the other quarter is capital investment, buildings, infrastructure, roads, coastguard, firefighting, even military, the whole show. I assume that depriciation would result in a 6 year period in average (from coffee maker to lawn mower to administration building and F22 fighter jet.
Where does this get us?
Services: 30% of GDP with 4 month period
Capex: 10% of GDP with a 6 year period
Services is worth only 30% x 4 month / 12 months = 10% debt/GDP
Capex: is worth 10% x 6 years = 60% debt/GDP
In total it adds up to 70% public debt. How is that for a milkmaids calculation? :-)
We can move this up and down a little, but things get dangerous in the range of 80%. Then options for demand side stimuli get tricky. Same with supply side stimuli (cutting taxes).
Debt is not limited to government. Every employee who receives a monthly paycheck actually is a creditor to his employer with a month period. Within that period he has to finance his living and may get into debt for 2 weeks of pay. Same story. So it makes sense to look at the whole economy, not just government. The whole is public hand, households, nonfinancial and financial business. http://www.gfmag.com/tools/global-datab … z2P91tfOv7
Again i want to draw a line to microeconomic situations. If a company goes bankrupt, all assets in the books will just evaporate in value. I don´t have too much experience with this, but i think assets deteriorate to some 30% of pre bankrupt figures. I we look at the total assets of an economy, then i would assume them to be in the range of 600% to 1000% of GDP (i would put the US on the "rich" side with something around 1000%.) That would allow the US to accumulate a total debt of some 300% of GDP and still have all debt covered in case of a national bankruptcy. And this would explain, why the US is still a trustworthy debtor, even if current situation and administration piles another 1 or 2 Trillion of debt in the near future.
by leeberttea 8 years ago
How's that hope-y change-y thing working out for ya?3% growth is better than what we've had the past 2 years but will we actually be able to achieve it once the new taxes kick in? What about the debt crisis in Europe? It seems they have made the same mistake we made approving a trillion dollar bail...
by Ralph Deeds 6 years ago
Paul Krugman:" Back in 2010, self-styled deficit hawks — better described as deficit scolds — took over much of our political discourse. At a time of mass unemployment and record-low borrowing costs, a time when economic theory said we needed more, not less, deficit spending, the scolds...
by crazymom3 4 years ago
What is the government doing to pay off the national debt? How is it being paid off?
by John Coviello 23 months ago
With a New President Coming In, What Do You Think Will Happen To The U.S. Budget Deficit & Debt?We have a New President of the United States taking office with big spending plans and big tax cuts. What do you think will happen to the U.S. budget deficit and debt over the next four years?
by SheriSapp 3 years ago
Why do the liberals insist on more deficit spending when the nation is BROKE?Why do the liberals REFUSE to understand that the deficit spending MUST be stopped or the nation will become premanently bankrupt?
by logic,commonsense 7 years ago
Read an article on MSN that the projected deficit for this year is 1.5 trillion dollars. Makes bush look like a piker with his measly 3-400 billion dollar deficits.Course there will be those that forget that bush is no longer prez and will find a way to blame him.Obama and the Dems own...
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