Sunday, June 18, 2006


Today while reading the Skeptical Optimist, he finally put into words something that I have always felt, but have never been able to express.

Link: "Any given generation will need to pay down the debt only if the economy starts shrinking. In a growing economy, we do not need to pay down the debt; we can continue to add to the debt, without hurting our financial condition. That is not an egregious policy, that is a mathematical fact that has been tested over and over again in private sector business as well as public sector government. The debt burden for a nation is indicated by the ratio of its debt to the size of its economy. To maintain a constant ratio, a nation's debt must grow no faster than its economy grows -- or its debt must shrink at least as fast as its economy shrinks. (I shudder to contemplate the latter scenario; it would probably lead to an overthrow of our government.)"

I fully agree with the that Debt to GDP ratio is the correct measurement, but we do disagree on what the correct level of debt is. Unlike the Skeptical Optimist, I believe that hard times are a coming. They could be in my lifetime, they could be in my children's lifetimes, or my grandchildren's lifetimes. The severity of the disturbance could be as mild as the recession a few years ago, as bad as what is happening in Zimbabwe or even worse, right now. If you believe that hard times are a coming and you also think that they debt could cause problems WHEN the economy tanks, then it makes sense to maintain as small amount of debt as possible. The good times will never last and I feel that the good times are a gift from God to get us through the bad times.


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