The Greek economy is in free fall. The “austerity measures” there have driven unemployment above 20%, and the future looks bleak. The reason is their national debt-to-GDP ratio is 130%.
How does the U.S. compare?
The official reading on the U.S. Gross Domestic Product is $15 trillion. There is a detailed formula used to calculate GDP, and the major factors are consumer spending, government spending and import/exports. The U.S. debt right now is $16.4 trillion. This gives us a debt ratio of 110%.
If you dig into the numbers, $1 trillion of government spending is financed by selling debt. It’s not really spending if we have to borrow it. Or, put in real terms, the $1 trillion we borrow every year cannot be counted as output by the country. It’s a negative on GDP not a positive.
You have to go from adding $1 trillion to consumer spending and import/exports to subtracting the $1 trillion. That gives you an annual GDP of $13 trillion.
So, the true ratio is $16.4 trillion divided by ($15 trillion – $2 trillion) equals 1.26 or 126%. We’re almost Greece. With another $1 trillion deficit projected for 2013, by the end of this fiscal year nine months from now the debt ratio will be 134%. Greece.
Actually, there are quite a few unpaid bills in Washington even now. $60 billion for FEMA and Sandy aid, a $40 billion loss at Fannie Mae and Freddie Mac, a $15 billion loss at FHA, a $15 billion negative at the U.S. Post Office, among others.
We’ll surpass Greece in a matter of months, if we haven’t already because Greece has reduced their ratio already.
Anybody who says we don’t need some really drastic “austerity measures” and yesterday is delusional.
Graphic courtesy of the IMF.
