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Great chart of historical events that led up to ratcheting-up of U.S. debt:

http://s.wsj.net/public/resources/images/OB-OG726_TotalP_K_2...


From WSJ MarketBeat Blog.

http://blogs.wsj.com/marketbeat/2011/06/10/u-s-public-debt-1...
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Interesting chart. In isolation, doesn't mean much. You need to look at the debt in relation to the country's earning capacity - GDP. Otherwise, it's like saying Walmart has a lot of debt - and they do in an absolute sense, 56 billion - but not really when you look at their 25B a year in operating cash flow.
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You need to look at the debt in relation to the country's earning capacity - GDP.

Look at the Axis!!!
The chart plots debt as Percentage of GNP/GDP.
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tinfoil helmet alert.
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Just because it is higher or lower now, on a relative basis, than past years is not necessarily ominous. The question is how much can we sustain relative to our productive capacity? If the average is 40% and we're at 60%, it doesn't necessarily mean we're going to blow up. It's cursory to look at the trajectory of a chart and think that tells the whole story.
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Ok, more charts for the "tin foil" crowd to comptemplate.


Total US debt to GDP (government,business and consumer):

http://www.dailymarkets.com/economy/2010/07/21/the-total-us-...


US Stock market cap as a % of GDP:

http://www.ritholtz.com/blog/2010/07/total-market-capitaliza...
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lol. well, i think the market is overvalued, that we can't run 10% deficits, that there is no known buyer to replace the fed purchases from the Treasury dept, and that gov-stated CPI massively understates inflation. i'll continue to ponder.
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and that gov-stated CPI massively understates inflation...


well if CPI (or GDP deflator) is understated, then government published Real GDP is “overstated”.

Which means that all those chart ratios to GDP are really worse than they look!

Yikes, maybe it’s time for me to get one of brewer’s tinfoil helmets :)
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LOL!
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well if CPI (or GDP deflator) is understated, then government published Real GDP is “overstated”.

Howard, those charts show nominal debt to nominal GDP.

When GDP GROWTH is quoted, it is indeed "Real" but the chart is unchanged given the level of CPI.

Both debt and GDP are nominal measures.

Ben
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Ben,

Thanks for the correction... I should have thought before I typed.

It makes sense that a ratio would be “nominal”.

I’m trying to understand why all these ratios are so out of line with historical numbers. Maybe the fact that Real GDP has been overstated for so long, somehow accounts for all these ratios spiking. I need to think about these numbers and try to figure out the consequences.

This sort of reminds me of the late 70s and early 80s when inflation was raging, and I wondered how it will all end? Of course the inflation scare eventually burnt itself out (thanks to Volcker). So maybe the deleveraging process (that is going on now) will eventually bring the debt and equity ratios back in line. That's sort of what I'm hoping and guessing will happen.

Ok, I feel better now... I won’t get my tinfoil hat just yet :)

Howard
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I might be way off....but I thought the US GDP was around $14 trillion give or take what is in fact irrelavent.........and that the debt load for the Federal govt alone was something around $14 trillion.....again give or take......this would mean a higher ratio than what was cited in the chart.....at least at this point....

now we might look at the history of English debt which was posted onthe METAR board a while back.....in the second of three major go arounds during the empire days.....their ratio was 250% debt to gdp....then comes Queen Victoria and the greater rise of the empire to possbiy produce its way out of its debts......

and we might look as well at a proposal some three years ago now to havce the world bank and imf pick up the debts of some 20 small nations......the proposal may or may not have happened later......the point is that the currencies in those nations would rise.....western production could rise to sell to those nations.....and the debt loads would be incurred all over again.......

ofw,

Dave
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I thought the US GDP was around $14 trillion give or take what is in fact irrelavent.........and that the debt load for the Federal govt alone was something around $14 trillion...

The original historical chart only tracks “Federal Debt held by the public”.

The over 14 trillion debt that you are referring to is “Total Federal Debt”.

This includes:

1) Federal debt held by public
2) Debt held by the Federal government (e.g. Social Security IOU’s)
3) Monetized debt (e.g. debt held by Federal Reserve)


http://en.wikipedia.org/wiki/United_States_public_debt
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