Comparing the US and Eurozone Debts

Discussion in 'Economics' started by irniger, Dec 12, 2011.

  1. irniger


  2. Ed Breen

    Ed Breen

    How would you discount the prospect for future U.S. growth against the prospect for future EU growth?
  3. irniger


  4. Ed Breen

    Ed Breen

    irniger, I asked you what you thought the relative growth prospects were. You sent me an EU study of historic growth and projection using Per Captia GDP adjusted for purchasing power parity.

    Do you think that is a good way to measure growth?

    Do you think the regular GDP is a good measure of growth?

    Do you think that growth and the idea of wealth are related?

    I ask the questions because any practical assessment of Debt/GDP depends entirely about your expectaion of future growth. If your income increases relative to your debt then you can pay your debt, and you don't have a debt problem really. If your debt will increase faster than your income to pay for the debt then you can't pay your debt. The key variable in all this is growth and its relationship to income (government revenue). It is backward to look at the EU excess debt problem as a problem of debt liquidity. It is actually a problem of low growth in the face of unfunded entitlements.

    It appears that a lot of policy makers don't make a distinction between revenue obtained through debt and revenue obtained through current and future growth. It is no surprise that people who do not distinguish between debt liability and income from assets are having a hard time coming up with a work out plan.

    Debt is only a problem when the cost of the debt is growing faster than the income realized from the investment of the debt. That goes for individual enterprise as well as sovereigns. So, it matters very much what you invest in, by deficit spending or surplus earnings, and whether that investment produces growth and income to repay the debt.

    Who do you think has a better prospect of paying off its accumulated and ongoing debt...the EU or the US? Why?
  5. irniger



    I am not really knowledgeable in this subject. Trading my own funds purely with TA I sometimes try to find hints for tradings decision in publications.

    I can follow your arguments though. And I believe, the USA has more growth potential because people there are more entrepreneurial, whilst in many socialist dominated Euro countries people are less so. On the other hand growth is very much dependent on investments and government spending. Both these driving forces have dried up in the US as well as in many Euro countries.

  6. Ed Breen

    Ed Breen

    You started the thread showing a two criptic links comparing EU Debt and U.S. Debt and and appearing to show that U.S. had more debt. You did not make any comment beyond posting the links for comparison of debt to GDP.

    My questions of you and my comment were designed to focus the issue on growth in the future. My point is that the amount of debt can only be considered excessive if you expect future growth to be lower than the cost of the accumulated debt. If you accept that you should see that the issue is about the comparable expectation of future growth and not the amount of accrued debt.

    I reject the idea that government spending contributes to growth...government spending is of course spending and can only be considered 'investing' in the most cynical rhetorical sense. As spending, government spending, reduces investment that creates real growth. Government spending, like consumer spending, can only occur if it is funded by past production surplus ('savings'), current production surplus ('profits'), or future production surplus ('debt'). All spending is dependent on production in the past, present or in the future. All income to pay debt is dependent on production in the future. Production in the future is highly dependent on investment in production presently and historically. Where policy diverts savings, profits and debts to consumption then future production will decline and debts will become unsustainable.

    Can you see that the idea of excess debt has everything to do with your view of future it growth, income, wealth, or the increase in 'assets.' In a classical sense you become insolvent when the cost of your debt begins to exceed the income from your assets. The whole idea of investment is to create or maintain assets.

    I return to the question...who has the best possibility of maintaining and increasing thier base of aggregate assets such that the income from those assets can carry and reduce the debt?

    I reject GDP as a proper measure of growth...It is a measure of spending, not growth.
  7. There is one major difference between the us and every other country as it pertains to debt. And thats the fact the dollar is the still the world reserve currency . This permits the us to run a much higher debt to gdp ratio. And I think gdp is a good measure because it represents the demand side of the economy but at the same time it is only a part of the entire equation as it relates to the health of the economy both present and future