Debt to GDP

The debt to GDP ratio will soon be at 100%.  This counts the IOUs for Social Security and Medicare.  It does not count all of the unfunded liabilities (promises) that include Social Security and Medicare.  The IOUs consist of money that was collected through payroll taxes in the past and spent on other things (vote buying).  The rest of the promises are unfunded liabilities.  Unfunded liabilities are estimated to be as much as $100 trillion.  This will never be paid.  There will be benefit cuts which will include an increase in the retirement age.

The debt to GDP ratio hitting 100% is not something really meaningful other than it being a milestone.  Japan's ratio is close to 200%.  The biggest thing about hitting this number for the U.S. is that it will make some headlines and remind people of how much trouble our government has gotten us into.  The debt is somewhat manageable right now for the government because interest rates are low and foreign governments continue to buy, or at least roll over, U.S. debt.

The ratio will continue to increase and eventually rates are likely to rise.  This will be a tough scenario that seems inevitable at this point.  The U.S. will be discussing austerity measures like Greece if we are not discussing mass inflation or hyperinflation.  Mass inflation seems like a good possibility.  Gold seems to think so right now too.  We could easily see price inflation of 20% or more.  Hyperinflation is much less likely.  It would destroy the banking system and cause revolution.

We'll keep an eye on the debt to GDP ratio in the next several months.  When it hits 100%, it should at least be fun to read some headlines.  Some will be alarming and others, written by Keynesians, will say "no big deal".  It is a big deal.  It is taking capital away from the private sector and lowering our standard of living.