The IMF and DNA India are saying different things. The IMF says the US can raise its debt significantly and still have the ability to pay it off. But, below, is an excerpt from one of India’s better newspapers and it says that US debt to revenue ratio is 358%, extremely high and pointing to big problems paying off its debt down the road. Read more below…
“Well, what matters is the ability of the governments to service these huge debts that they have managed to accumulate. As Marès writes, “An even better approach would be to scale debt against the maximum level of revenues that governments can realistically obtain from using their tax-raising power to the full. And when you do that, the numbers get very interesting (See table). The US has a debt to GDP ratio of 53%, which is low when compared to countries in Europe. But its debt to revenue ratio is 358.1%. That means the ability of the US to continue servicing its debt is under doubt because it isn’t earning enough. Same is the case with countries across Europe. There isn’t enough money going around to service all the debt.”
Interestingly, Alan Greenspan would probably agree more with the DNA’s take than the IMF’s. The x-factor is inflation. It could dramatically shrink the future value of US debt, perhaps the only realistic strategy left for the government to pare debt down and make the interest payments.
