Home > economics > A Few Thoughts on Public Debt Growth

A Few Thoughts on Public Debt Growth

Clemens Kownatzki from FX Investment Strategies published a post with a chart (below), projecting GDP and public debt.

CBO Outlook (Source: FXIS Market Insights)

The chart does not tell the whole story.
1) More US dollars are used as a reserve currency then euros (still).
2) The US dollar is controlled by the government of one country,   the euro is not. And as the current situation shows, it is very difficult to get the euro zone countries on the same page.
3) Chinese Central Bank announced a few weeks ago its intention to reduce investments into euro zone debt holdings (although later the statement was corrected).
4) Such a ‘friendly’ country like Iran decided to switch from the euro to the US dollar when trading oil.
5) The chart misses one important limit. The public debt cannot grow forever. It grows as long as treasury bills offer returns relative to devaluation of the currency. And this margin erodes quickly.
6) GDP growth of a single country does not really show anything. If the world’s GDP grew, say 5%, but the GDP of a country grew, say only 2%, that is not growth, that is loss.

But this discussion is like who is better among bad. What I would look at is why the G8 share in the global economy keeps shrinking and check the share of which countries is growing in the recent years and why.

Categories: economics Tags: , , , ,
  1. July 2, 2010 at 04:54

    “The Global financial crisis has proved that the apparent strength of modern financial markets is illusionary.” Dr.Abul Hassan, UK.

    However, the proof is not felt by 50% the people because there is an annual $1 Trillion Stimulus Package postponing the effect of Depression. America has been living in a bubble for the last 10 years and plans to do so for the next 10 years. By that time the public will be hook, line and sinker in debt and whatever the Government dictates the people will be forced to submit or perish.

  2. July 2, 2010 at 05:09

    That’s true, but not quite. It depends how the money is invested. You can hardly get new business blooming that may generate long term income, if your infrastructure is falling apart. But the question remains how much is enough.

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