US debt is officially about 70% of GDP, the unofficial number is already 100% of GDP

Consumers in the US and the EU are laden with debt and are dependent on government support.

A report last week indicated that 20% of household income in the US is now a result of transfer payments (social security, welfare, food stamps, Medicare, etc.).  Greek citizens are rioting in the streets and setting cars on fire to protest any deferral of the national retirement age (and government pension) past age 50.

50!   

While short-term pain has been soundly avoided once again both in the US and in the EU, the long-term consequences are apparently much too unpleasant to consider.  So let’s not consider them, right?  Let’s enjoy the Bacchanalian fete!  Carpe diem. 

Laissez les bons temps rouler!    

US debt is officially about 70% of GDP.  It is projected to rise to 90% of GDP by 2020.  I say officially because with the government guarantee of Fannie Mae’s and Freddie Mac’s $5 trillion, the unofficial number is already 100% of GDP.  John Mauldin’s recent letter referred to a study by Rogoff and Reinhart.  Rogoff and Reinhart show that when the ratio of debt to GDP rises above 90%, there seems to be a reduction of about 1% in GDP. The authors of this paper, and others, suggest that this might come from the cost of the public debt crowding out productive private investment.