03-26-2020, 09:27 AM
Japan has debt of 200% of GDP and does not have stagflation; if anything they have struggled with deflation. US debt will hit 100% of GDP, which is manageable. A single (non-recurring) big spending bill isn't a problem.
The concerns are around structural deficits of about 5% of GDP even before this recession, and entitlement programs that are not adequately funded, combined with anemic GDP growth during the boom.
As a first approximation, as long as:
structural deficit/GDP + interest * debt/GDP < GDP growth
You are fine indefinitely (debt as a percent of GDP goes down over time). Interest rates have been at historic lows, so the second part of the equation is not a problem. The issue is the structural deficit and lack of GDP growth.
BC
The concerns are around structural deficits of about 5% of GDP even before this recession, and entitlement programs that are not adequately funded, combined with anemic GDP growth during the boom.
As a first approximation, as long as:
structural deficit/GDP + interest * debt/GDP < GDP growth
You are fine indefinitely (debt as a percent of GDP goes down over time). Interest rates have been at historic lows, so the second part of the equation is not a problem. The issue is the structural deficit and lack of GDP growth.
BC