Slightly OT: I HATE the calculation of debt based on "GDP"....what about you?

gecko109

Too often is the comparrison made of debt to GDP. I think this is a horrible way to look at an entity's debt ratio. Since the national GDP is the "entire pie", it really says nothing about a government's actual revenue. For instance, the U.S. GDP for 2010 is around $14 trillion dollars. But the government total receipts were just $2.7 trillion.

To say that the U.S. debt/GDP ratio is about 1-1 is very misleading. Since the government only gets about 19% of that "pie", why does it claim the whole thing in that ratio. A more honest and effective ratio would be debt/annual revenue. That number is about 5 1/2 to 1 right now, or 550%.

Lets say you worked in an entry level job in a midsized company. Your salary is $45,000. The CEO makes $300,000. Lets suppose you had $300,000 worth of debt. Would it be inaccurate, and even deceptive to claim that your debt to potential earnings ratio is 1 to 1.....because there lies within your company a salary position that pays $300,000? I think so.

The debt/GDP ratio...in my opinion.....is used to make things look much more palatable than they truly are. Until an entity...like the U.S.......decides to tax 100% of every dollar generated in the economy, it really should leave out the GDP number for anything other than a measure of economic growth.

revoldlog

Because, in the long run, the government is going to tax 100% of the GDP to pay for it's debt

All kidding aside, I think for a government, the revenue is not fixed, as they can raise the tax revenue to pay their bill, so a debt/GDP ratio is still a good indicator.

gecko109

<< <i>Because, in the long run, the government is going to tax 100% of the GDP to pay for it's debt

All kidding aside, I think for a government, the revenue is not fixed, as they can raise the tax revenue to pay their bill, so a debt/GDP ratio is still a good indicator. >>






Thats like saying my salary isnt fixed because I could just get a promotion. Its not that easy.

derryb

As slaves to personal and government debt we are never going to see an improving economy. Until the system is purged of this debt things will continue to get worse. As long as Washington sees more debt as a solution things will continue to get worse.

It amazes me to see a number of people want to invest in PMs while they are a prisoner to credit card debt. Student loans are the next major crisis and I fear our war machine will be fed with their lives as a way out that debt.

DrBuster

<< <i>It amazes me to see a number of people want to invest in PMs while they are a prisoner to credit card debt. . >>



peoples is silly

fishcooker

GDP includes the people who don't pay. At the least, our debt should be compared to the GDP of people who contribute towards paying it back.

I fear our war machine will be fed with their lives as a way out that debt.

Rest easy. The way out of that debt already exists for many, if not most. Just go work in a "disadvantaged" area for a couple years and the debt is forgiven. My mother worked with a new doctor who went to that awful place of poor and disadvantaged people... Durango, Colorado. It was so bad, he stayed there after the debts were erased. Something about the trout needing a fisherman and the snow needing a skier...

57loaded

<< <i>Student loans are the next major crisis and I fear our war machine will be fed with their lives as a way out that debt. >>



these could be a result of not being able to use mommy and daddy's HELOC?

jmski52

Financial analysis, and economic analysis both use a number of different parameters and compare them over time. One snapshot doesn't tell you the whole story, but a series of snapshots tell you more. So, there is some rationale in tracking the debt to GDP ratio over time, just like there is some rationale in tracking other ratios. They all contribute to the picture.

The problems begin when they start changing the focus of the picture by changing the components of each of the ratios.

fishcooker

mommy and daddy's HELOC?

Why bother with a HELOC when George Bush and his Dems already decided Uncle Sam will forgive student loans (unless an engineering student).