It's one of those comments that if you don't get what is so eye opening about it, I doubt me breaking it down will make it clearer.
It is classic actually, and a fact. One that is abused but nevertheless true. So long as the tax base increases faster than the debt it can exist in perpetuity. They violated the rule above, it can be a dangerous game but it's been one the US has been playing since the 50's. I'm not fond of it but that it is, has and may well continue to work is a statement of fact.
Money going out far exceeds money coming in. It does not take an economist to see that. Bloody obvious, isn't it?
No, it's increasing faster than the deficit. We have a great deal of debt, which I agree is worrisome. The other side however will argue that we owe it to ourselves and that an increasing tax base coupled with inflation means that debt gets nominally less significant as time goes on. Like I mentioned, we've still not repaid our debts from the mid 20th century.
Interesting post at Zero Hedge: Every place you look Europe has tried to solve their problems by adding more and more debt. This is true in the bank sector and it is true in the sovereign sector and the debts are piling up faster than Europe can pay for them which is not just a matter of the return that must be paid to finance them but the aggregate amount of new debt that has been added. Leaving aside contingent liabilities totally and just including Target2 funding, the Stabilization Funds’ loans and the debt at the ECB Greece has $461 billion of obligations that cannot be met. By the end of this year Italy will have added an additional $141 billion worth of new debt which is about 7.05% of their GDP. Spain is about to take on $125 billion in new loans which is approximately 9.3% of their GDP and Europe is verging, in my opinion, on an inability to pay their obligations. One country after another in Europe is rolling over and Germany, France, the Netherlands and a few other smaller nations only have so much capital to go around. I assert, in fact, that Germany given its sovereign debt, its funding of Target2, which continues to expand, and its obligations to the EU, the ECB and the Stabilization Funds is already in an over extended position that is careening out of control for this $3.5 trillion dollar economy. If Germany is the safest of what is available in Europe then not only is there not a clean shirt in the house but there is not one that is not ripped and torn. As a distinction I point to the United States with a $14.3 trillion economy that is 125% larger than its major banks. The country, during the American financial crisis, was able to bail-out the financial system. In the case of Europe the bedrock is France and Germany with a combined economy of $6.3 trillion that is trying to support a $15.3 trillion European Union and where the banks are three times the size of the sovereign nations. The flight trajectory is not sustainable in my opinion as more and more debt is added at the national and Federal level so that while recognition has not fully come to the bond markets it will and then increased difficulties will mount and eventually topple the current structure in some yet unknown fashion. The underpinnings cannot support the weight and one day, someplace, the construct will crack because it must. Just stop and look at the numbers. Put your prejudices and your hopes and prayers aside and stare at them. Place whatever desires you have to one side of the desk and take a very, very hard look at the data; all of it. Then reach a conclusion on the sustainability of the European Union and I do not believe that your answer will be so different than mine. My journey examining Europe began with Greece which seems wholly appropriate given its historical precedence. It started simply enough with the addition of their real assets and their real liabilities. It ended simply enough with the realization that the numbers did not add up. There was no prejudice then and there is none now. The numbers just don’t work; not for Greece and not for Europe and so a moment of disembarkation is coming because it has too and it is as simple as that.
I just don't agree with you that it is not a problem. We are afloat only because the U.S. Dollar is still the world's reserve currency.
And such as result is bleedin obviously quite rational (indeed, its often critically important to stop capitalism descending into crisis)
I specifically said it's worrisome, just not as worrisome as politicians paint it. It helps, it matters, certainly not the only reason though.
As a percentage of GDP it was higher during WWII, and for good reason. The raw debt numbers are at record levels now.
