Simple question: what happens when our national debt exceeds our GDP? nt

[Javaman]

[piratefish08]

1. United States of China?

[taught_me_patience]

2. Nothing

as long as we can comfortably make debt payments. What do you expect would happen?

[Javaman]

10. I don't know, that's why I'm asking. nt

[taught_me_patience]

13. There are consequences when debt becomes too much of a problem

The main risks are:

1) high inflation
2) raising taxes and killing economic growth
3) cutting services and letting people suffer

I believe that 100% to 120% of GDP is the tipping point where the debt becomes a problem.

[Javaman]

17. Interesting. Thanks for the info. :) nt

[gateley]

3. I'm not trying to be funny, but I honestly thought it already had. That we were,

as a country, essentially in the same situation so many Americans are. Owing more than we'll ever be able to pay. Third world country.

I'm interested to see the answers of those who actually know.

[hfojvt]

4. it already has in the past

from about 1945 to 1950 National Debt was greater than GDP
http://zfacts.com/p/318.html

[MineralMan]

5. If you own the printing press...

[suston96]

6. Don't remember much about accounting but.....

National debt is the accumulation of several or many years of budget deficits (and surpluses)... GDP is an annual thing.

Maybe I don't understand the question.

[NoNothing]

7. Nothing in particular

Japan, for example, has had a debt in excess of GDP for quite a while now.

The most likely effect will be that people will be less likely to lend to us, causing interest rates to go up and making borrowing more expensive for the government.

The real danger is when debt *service* starts to become a sizeable chunk of GDP. This would mean that we are spending a lot of our GDP just staying above water.

[Javaman]

12. What is debt "service".

I'm really ignorant on this stuff.

[taught_me_patience]

15. Interest on the debt

The part the government is obgligated to pay or else risk default.

[Javaman]

16. ahh okay, thanks. :) nt

[Selatius]

18. It's like paying interest on a credit card. It becomes problematic if interest alone eats up money.

Then you're going to have to budget for more and more of your taxpayer dollars simply going towards paying interest off the debt you took on. In the government's case, it's paying money to people who hold government bonds, and not all of them are American, instead of using that money for other purposes, like infrastructure repair, health care, education, jobs programs, etc.

[zipplewrath]

8. Same as your mortgage

Most people mortgages exceed their annual income. Not exactly extraordinary. Predominately you want your net value to increase faster than your debt. i.e you can owe more than you make, but each year you want to be worth more at the end of the year, and owe less. Single year exceptions are made for particular "life events" like homes, cars, weddings, etc.

I personally saved for years, and had alot in savings. One particular year, I got married, bought a house, and replaced my car. Bad year, but I had the savings to back up the cash flow situation. Wouldn't want to do that every year. On a national level, we needed to spend alot of money over a short term. What you'd like to see is revenues increase faster than the borrowing from here on out. Which is different from revenues being greater than expenditures. That's the ultimate goal (and we got there under Clinton) but it doesn't have to be a single year goal.

[Javaman]

14. Thanks for posting a clear and concise answer. :)

cheers!

[taught_me_patience]

20. Bad analogy because GDP is not government "income"

Tax receipts is government income. Tax receipts is about $2T and debt is about $12T. Therefore, we are at 6x income. This would be like a person making $50k, buying a 300k house. High but not impossible. Also, the goverment can borrow much more cheaply than a mortgage.

[zipplewrath]

21. Yeah, I know, just trying to simplify the concept

Technically "the country" is borrowing the money, and "the country's" income can be considered the GDP. It's not a perfect analogy, but it serves the purpose. (Some will argue that GDP doesn't represent much at all).

[NNN0LHI]

9. We stop involving ourselves in wars that can't be won

Won't be able to afford them.

Don

[Selatius]

11. We borrowed up to 140% of our GDP to fight and win World War 2.

We're not fighting a world war of that kind, but at the same time, that might be the problem. Without the rest of the world being engulfed in war, not everybody will feel as willing to lend money to the US government.

[Hannah Bell]

19. nothing in particular.

http://www.visualeconomics.com/gdp-vs-national-debt-by-country/