“Neither a lender nor a borrower be”.
This Shakespearean advice, from the tragedy called Hamlet, might seem impractical today.
Often, we wouldn’t be able to buy cars or build houses, if we do not borrow.
And, if it were not for those bankers - who first lend, by smooth talking us into taking loans, and who then come straight to our throats, if we default - many of us wouldn’t be taking any bold or adventurous steps.
But, we are not alone. Even organizations and countries borrow money. And, just like many of us, they thrive sometimes. And they nose-dive sometimes.
In 2015, when Greece formally defaulted on a $1.7 billion payment to IMF (International Monetary Fund) it had plunged itself into a crisis. And it was for an amount that was only a minuscule part of its overall debt of $367bn then.
As of 2017, Greece’s total debt is $376bn.
Since the 2009 financial crisis, due to austerity measures and several conditional pressures from outside, it had ensured that the debt had not risen above 6%.
But the Greek tragedy is that, during the same period, its critical debt-to-GDP ratio has shot up from 127% to 179%.
Compare that with USA, which is on top of the world when it comes to government debt.
Its total debt is $21.6 trillion dollars. And counting. Trillions, not billions. And that is some 60 times more than that of Greece. (Check out the US Debt Clock here)
The 2017 Gross-Federal-Debt-to-GDP ratio of USA is 105.4%. We can call it very high because, never since 1940s, has it been this high.
It was an all-time high of 118.9% in 1946 (But it was during the Second World War, which is understandable). It was a record low of 31.7% in 1981.
Interestingly, from the historical data, from 1940 to 2017, we can see that the Government Debt to GDP ratio had averaged at 61.7%.
Borrowing 60%-62% of what you are producing may not be a bad idea. In fact, it could be a great idea, to surge ahead. But when, eventually, borrowing becomes greater than what is being produced, danger-lights and alarm-bells should start off.
In 1988, the debt was only half of America's economic output. But by 2017 it has become greater than its output.
Today, therefore, letting this percentage rise more could be disastrous. Especially, for a nation in whose treasury bonds, other countries have heavily invested.
When a nation’s leaders decrease revenue by cutting taxes, and yet increase expenditure by putting more dollars into defence, education, medical care, and social security, it is obvious that they will be forced to borrow.
Now, with the mid-term elections going on in the USA, let us hope that some new decision makers would emerge, with fresh thoughts, to effectively address both; the fiscal deficit and the debt-to-GDP ratio.
In an article titled “What would it take to get US debt under control?” James C Capretta - of the American Enterprise Institute, a public policy think tank - suggests that keeping debt under 50% of the GDP, by 2033, is ideal and possible. But getting it under 100% should be a top priority.
Republican leaders, including those in the Trump administration, are telling us that the growing deficit is an example for why entitlement programs like Medicare and Social Security must be cut.
Democrat leaders, on the other hand, are telling us that they can reverse some provisions of the GOP tax law to increase revenue.
But, for whoever comes to power, there’s another Shakespearean advice: “Wise men ne’er sit and wail their loss but cheerily seek how to redress their harms.”
Related Links
This Shakespearean advice, from the tragedy called Hamlet, might seem impractical today.
Often, we wouldn’t be able to buy cars or build houses, if we do not borrow.
And, if it were not for those bankers - who first lend, by smooth talking us into taking loans, and who then come straight to our throats, if we default - many of us wouldn’t be taking any bold or adventurous steps.
But, we are not alone. Even organizations and countries borrow money. And, just like many of us, they thrive sometimes. And they nose-dive sometimes.
In 2015, when Greece formally defaulted on a $1.7 billion payment to IMF (International Monetary Fund) it had plunged itself into a crisis. And it was for an amount that was only a minuscule part of its overall debt of $367bn then.
As of 2017, Greece’s total debt is $376bn.
Since the 2009 financial crisis, due to austerity measures and several conditional pressures from outside, it had ensured that the debt had not risen above 6%.
But the Greek tragedy is that, during the same period, its critical debt-to-GDP ratio has shot up from 127% to 179%.
Compare that with USA, which is on top of the world when it comes to government debt.
Its total debt is $21.6 trillion dollars. And counting. Trillions, not billions. And that is some 60 times more than that of Greece. (Check out the US Debt Clock here)
The 2017 Gross-Federal-Debt-to-GDP ratio of USA is 105.4%. We can call it very high because, never since 1940s, has it been this high.
It was an all-time high of 118.9% in 1946 (But it was during the Second World War, which is understandable). It was a record low of 31.7% in 1981.
Interestingly, from the historical data, from 1940 to 2017, we can see that the Government Debt to GDP ratio had averaged at 61.7%.
Borrowing 60%-62% of what you are producing may not be a bad idea. In fact, it could be a great idea, to surge ahead. But when, eventually, borrowing becomes greater than what is being produced, danger-lights and alarm-bells should start off.
In 1988, the debt was only half of America's economic output. But by 2017 it has become greater than its output.
Today, therefore, letting this percentage rise more could be disastrous. Especially, for a nation in whose treasury bonds, other countries have heavily invested.
When a nation’s leaders decrease revenue by cutting taxes, and yet increase expenditure by putting more dollars into defence, education, medical care, and social security, it is obvious that they will be forced to borrow.
Now, with the mid-term elections going on in the USA, let us hope that some new decision makers would emerge, with fresh thoughts, to effectively address both; the fiscal deficit and the debt-to-GDP ratio.
In an article titled “What would it take to get US debt under control?” James C Capretta - of the American Enterprise Institute, a public policy think tank - suggests that keeping debt under 50% of the GDP, by 2033, is ideal and possible. But getting it under 100% should be a top priority.
“Procrastination is the enemy of sound fiscal policy. The longer political leaders wait to take action, the more difficult it will be to reach reasonable goals”, he says.
Republican leaders, including those in the Trump administration, are telling us that the growing deficit is an example for why entitlement programs like Medicare and Social Security must be cut.
Democrat leaders, on the other hand, are telling us that they can reverse some provisions of the GOP tax law to increase revenue.
But, for whoever comes to power, there’s another Shakespearean advice: “Wise men ne’er sit and wail their loss but cheerily seek how to redress their harms.”
Related Links
- 3 charts that show why the US should stop ignoring its debt problem
- Does US Debt Matter? CNBC Explains (YouTube Video)
- What would it take to get US debt under control?
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