Tuesday, December 28, 2010

Followup to the sustainable 12% deficit

I was plugging away on some calculations and came to a shocking conclusin It appears if we have the nominal size of the economy expand at 6% a year, (2% productivity, 1% population growth and 3% inflation..


Once you get to a national debt of 200% of gdp.. then the 6% nominal growth in gdp exactly cancels out the 12% deficit. So the national debt remains at 200% of gdp for the next year.
In that scenario the national debt would never rise above 200% of gdp even with a constant deficit of 12% of gdp.  Now for the USA that is quite significant, 12% of gdp 1,759 billion dollars.  Or 5,674$ per man, woman and child in the country.  Over 20 grand for your average family of 4.  That can be sustainably borrowed.

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