Debt-to-GDP: Why can't it raise to infinitum?

Discussion in 'Economics' started by KohPhiPhi, Jun 10, 2021 at 2:57 PM.

  1. KohPhiPhi


    US debt is, now a days, sitting at around 130% debt-to-GDP ratio.

    Most macro analysts say that, at such high levels, the Fed can't allow rates to raise too much at any point through the yield curve, or else everybody and their mother would default: the Govt itself, all the zombie corporations, the average Joe and Jane on their mortgage, etc. As such, should the market push 10-year rates too high, the Fed would be forced to step in and implement some type of yield curve control shenanigans to save everybody's bacon.

    Fair enough: in theory, in make sense.


    Is it perhaps wrong to suggest that the Fed cannot afford to let rates rise? As in, is perhaps Government debt-to-GDP no longer a useful metric, just as Japan is now over 250% and chugging along, business as usual?

    If so, it would mean that the Fed could and would allow rates to rise when it is appropriate, and the only "adverse" outcome is that the debt-to-GDP ratio will just rise faster, all while the Fed buys as much bonds as needed.

    What do you think: can debt-to-GDP just raise to infinitum like it did in Japan?
    Last edited: Jun 10, 2021 at 3:25 PM
  2. Well be fortunate if we end up ONLY as bad as Japan.

    zdreg likes this.
  3. zdreg


    It did not rise to infinitum in Japan.
    Use of the word infinitum debt to GDP is part of Modern Market Theory (MMT)
    espoused by wokes and progressives out to destroy or remake the US.
    We will end up much poorer.
    Last edited: Jun 10, 2021 at 4:19 PM