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Phil's Rambling Rants
November 19th, 2004
12:29 pm


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Federal debt rantings

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[User Picture]
Date:November 22nd, 2004 12:39 pm (UTC)
You're right, I somehow read that as quarterly, not as the annual. Color my face really, really red. I apologize for the poor research.

The point should have more been about the historical perspective rather than the actual "the % of GDP is OK" argument, since I don't personally buy that one myself though it tends to be a staple of deficit spenders. A table of historical percentages can be found here, which seems to be a pretty conservative organization but I have no reason to doubt the numbers themselves.

Unfortunately, since I really hate the % of GDP argument, I don't tend to remember all the details of it. In general, I agree with your statements, in that GDP might be able to be treated as an asset but it is an asset unavailable to the government as such. I think the argument in favor says that GDP is the asset of all the public, and government debt is an obligation of the public, so they can be compared. I am viscerally opposed to this myself, and prefer the "income vs. outgo" perspective.

I stick by the other three statements, though, regarding the effects of interest rates v. inflation and the idea of keeping money in circulation in order to keep the economy up even at the cost of a high deficit/debt.
[User Picture]
Date:November 22nd, 2004 02:44 pm (UTC)
Assuming a perfectly spherical, frictionless world, higher interest rates mean lower inflation, but when oil prices in dollars go high enough to start significantly driving up the price of everything else in the economy, there will be inflation, and if there is inflation, nominal interest rates have to go even higher for real interest rates to be high enough to finance the deficit.

We had bad inflation in the 70's driven by oil prices, and high interest rates with it, though the interest rates were at least partly high because the government was trying to dampen the inflation. We're heading for the same situation again, but this time interest rates will be forced up by the market in spite of the government trying its best to stop it. I don't know if we can tolerate $50/barrel oil for the long term, but I'm pretty sure $100/barrel oil will sink us, and I see that as moderately likely in the medium term.
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