Joe Davis discusses debt and GDP

The national debt is still an extremely important issue. Joe Davis says our current debt to GDP isn’t alarming high. However, he mentions that our long-term prospects are more concerning because the debt to GDP ratio will continue to rise.


Rebecca Katz: Okay, great. Well, turning back to the U.S., we have a question just in from Jerry, and Jerry says, “How could we hope to service the growing federal debt with such a low GDP?” So low growth, growing debt, and concerns about it? We’ve talked about that in the past.

Joe Davis: We have talked about debt in the past and it’s funny, Rebecca, you and I’ve talked, it was probably 2010, 2011 and we said at the time, it was one of the— It still is one of the seminal issues, certainly I’d say of our generation, right, so our age, of all our generation. I mean, the debt, if you were bull enough to look out 50 or 60 years from now it’s concerning. Debt-to-GDP right now is not alarmingly high, you know, it’s roughly 80% to 90% debt-to-GDP depending upon the metric you use, but it will rise, you know, over a longer period of time in large part because of Social Security, Medicare, and Medicaid. That’s just arithmetic. You can go on the Congressional Budget Office, the CBO, which is a nonpartisan group, which generates all the budget statistics, you know, to look at the data. Again, I think the bond market has given this issue a pass and I think will continue to do so for the next two or three years until there’s an alternative viable currency and bond market that can rival the U.S. dollar and U.S. Treasuries. But, I hope we can use that time to at least— If we’re— I’ve long hoped for an environment where you could do short-term fiscal stimulus, but you would pair that with making sure that that doesn’t rise. It’s called revenue neutral, but longer-term, very longer -term, doesn’t, you know, contribute significantly to long-term debt prospect. We’ll see, because that could very well occur. I think it may not be getting a lot of discussion right now, but as we get into 2017, I would imagine it would.

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