Photo: Wikimedia Commons
Congrats to JPMorgans Eye on the Market letter for winning for most colourful analogy to describe the US debt situation:Q&A on the USA, with a watchful eye on the risk of giant man-eating plants;
What is The Day of the Triffids?
It’s a 1951 science fiction novel. There’s a meteor shower, and most people go outside to look at it. The next morning, everyone who looked at the meteor shower ends up blind, and Earth is taken over by giant man-eating venomous plants. The point: some amazing events which look benign have unforeseen consequences. Will a pact of going for growth pay the freight of higher Federal debt in the long run? Hard to say; there are not a lot of examples to draw from. Economic theories and their associated debt bubbles don’t always work out as planned. After WWII, the US also faced a debt ratio of 80% of GDP. Austerity was not the answer back then; government receipts and outlays as a % of GDP did not change much during the 1950’s, and net debt was flat. So how did US debt/GDP fall from 80% to 46% in just 10 years? Robust annualized real growth of more than 4.0%, and 2.0% inflation. However, unique economic conditions and productivity gains of the 1950’s (e.g., interstate highway, rebuilding of Europe and Japan) may not be repeated, and the country was not headed into an entitlement time bomb. If the US does not experience a growth/productivity boom, the burden of higher debt could last for a generation or more. A pro- growth Administration would probably help, but the difficulty lay in defining exactly what that means.
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