econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 26 May 2016

Martin Feldstein On Government Debt Does Not Make Sense

from Dirk Ehnts, Econoblog101

This is from his article at Project Syndicate:

In the United States, the Congressional Budget Office estimates that the federal government debt doubled over the past decade, from 36% of GDP to 74% of GDP. It also predicts that, under favorable economic assumptions and with no new programs to increase spending or reduce revenue, the debt ratio ten years from now will be 86% of GDP.

The odd thing is: actual government debt to GDP for the US is 106% (source). So, if we go from 106% to 86% in ten years and the trend continues, then we'll hit 6% in fifty years, which is 2066. How does that square with Feldstein's first paragraph?

A major common problem that deserves their attention is the unsustainable increase in the major developed countries' national debt. Failure to address the explosion of government borrowing will have adverse effects on the global economy and on debt-burdened countries themselves.

There is another odd scenario:

Even more worrying, the annual deficit ratio will double in the next decade to 4.9% of GDP, putting the debt on track to exceed 100% of GDP

I'm scratching my head here. Why will the deficit double? Are we still "under favorable economic assumptions"? Will 100+% still be lower than the 106% of today? This text needs further elaboration because as it stands numbers are pulled out like a rabbit from a hat. This spectacle leaves the reader wondering how scientific it is to claim to know where government debt to GDP ratios will be in 10, 20 or 30 years.

I completely disagree with the idea that there is too much government debt right now - there is not enough! After all, each US dollar of public debt is transformed into one US dollar of private net financial wealth, either in the form of treasury bonds (or bills or notes) or money. Government should spend to get rid of unemployment, and not cut spending in order to 'stabilize public debt'.

Mixing euro zone countries with no sovereign currency with cases like the US and Japan is completely confusing. If you really want to understand government debt, you need to go through the balance sheets. I did the exercise for the euro zone, with my book coming out in September 2016. If the ECB keeps on buying euro zone government bonds on secondary markets, no euro zone government can go bankrupt. This is a political problem, not a technical one. In a modern monetary economy set up well, the risk of default on government bonds issued in domestic currency is zero.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
How To Get People To Exercise
September 2016 Conference Board Consumer Confidence Now At Highest Level Since the Great Recession
Richmond Fed Manufacturing Survey Remains In Contraction In September 2016.
September 2016 Chemical Activity Barometer Continues to Signal Improving Economic Growth
Case-Shiller Home Price Index July 2016 Year-over-Year Rate of Growth Decelerates
Between Geopolitics And Technology
Infographic Of The Day: See Every Single Part Inside An IPhone
Early Headlines: Asia Stocks Mixed, Europa Water Plumes, All About The Debate, Putin Reacts To Debate, Oblivious Students, India Rocket Success, China Profits Surge And More
September 26, 2016 Weather and Climate Report - Not Quite the Camino Real
The Dominant Forces In The U.S. Gun Market
69 Percent Of Americans Have Less Than One Thousand Dollars In Savings
Average Gasoline Prices for Week Ending 26 September 2016 Unchanged
Genetic Studies Reveal Diversity Of Early Human Populations - And Pin Down When We Left Africa
Investing Blog
Monday Morning Call 26 September
We're Back Here We Started
Opinion Blog
Housing Inflation- A Simple Case Of Supply And Demand Exacerbated By Low Rates
Heading For A Fall? With Summer Over, Europe Must Face Up To Its Mounting Crises
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
27Sep2016 Market Update: Wall Street Gains From Tech Stocks And A Three Percentage Loss In Crude Prices, Indicators Remain Fractionally Bullish
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved