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Minyan Mailbag: US Debt



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Prof. Succo,

Some talking head was on Squawk Box this morning saying it is better for China AND the United States if they DON'T de-peg the Yuan. They then said that the interim budget deficits should not be sledge-hammered as that will kill the goose, not cure it. Further, they said that interim deficits are not the question, it's the overall total government debt as against gdp that is the real issue, and we are below 40% debt / gdp (which is lower than the previous highs of 50% or more).

They also said that Elmer has it right this time - it's not 1994 and it's not 1999. He is raising the rates in measured form. Then they said that the long bond yield should be higher.

All the above is bullish, not why all the worry and frowns and hand wringing?


Minyan P

Minyan P,

I don't know where those figures come from, but we differ.

The government just raised the debt ceiling (10/04) from $7.2 trillion because they had to; we put total government debt at $7.4 trillion. GDP is a shade under $11 trillion - so total government debt is 67%, by far higher than ever before.

A better measure of risk is total credit in the economy. This is currently around 305% of gdp - sharply higher than 2000 where it was around 260%. This compares to 260% in 1930-31 when it rose from 150% in 1925. This number reached a low in 1954 of 130%.


Prof. Succo

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