Dangerous Fallacy in GDP Measures

Some time ago I read an interesting paper from within the field of academic economics. The article, by Ole Rogeburg was written pre-economic crisis, and was titled 'Taking Absurd Theories Seriously: Economics and the Case of Rational Addiction Theories'. Perhaps the most important point of the paper was that it was a case study to illuminate what he saw as a more widespread problem.

I will not detail the entire argument of the paper, but he identifies that economists used mathematics to present a completely absurd explanation of drug addiction, and that the resultant nonsense has been used in the formulation of government policy. The most striking element of the discussion is how the completely implausible might become plausible with the backing of clever academic argument, and the respectability of a veneer of academic rigor.

One of the themes of this blog has been trying to view the current state of the world economy as it might be observed in the circumstances of today, rather than through any particular perspective derived from academic economists. As part of that process, one of the problems with economic theories that I have identified is the obsession with GDP figures as a measure of the health of an economy. I might even go as far as to say that the subject has become something like an obsession of my own. As such, I hope that I will be forgiven a post devoted to the subject, and which pulls together some earlier points that I have made.

Before I continue further, I will quote the understanding of GDP that is described in the UK's official publication of statistics, National Statistics online:

Gross Domestic Product (GDP) is an integral part of the UK national accounts and provides a measure of the total economic activity in a region. GDP is often referred to as one of the main 'summary indicators' of economic activity and references to 'growth in the economy' are quoting the growth in GDP during the latest quarter.

In the UK three different theoretical approaches are used in the estimation of one GDP estimate.

GDP from the output or production approach - GDP(O) measures the sum of the value added created through the production of goods and services within the economy (our production or output as an economy). This approach provides the first estimate of GDP and can be used to show how much different industries (for example, agriculture) contribute within the economy.

GDP from the income approach - GDP(I) measures the total income generated by the production of goods and services within the economy. The figures provided breakdown this income into, for example, income earned by companies (corporations), employees and the self employed.

GDP from the expenditure approach - GDP(E) measures the total expenditures on all finished goods and services produced within the economy.

The estimates are 'Gross' because the value of the capital assets actually worn away (the 'capital consumption') during the productive process has not been subtracted.

Whichever approach is taken, the key point is that the measure is made of activity, and therein lies the problem. A whole host of factors might determine activity, but they offer no indication of the health of an economy.

For example, if we look back to the devastation of Hurricane Katrina, there was a massive programme of rebuilding following the destruction of so much infrastructure. The infrastructure that was destroyed represented an accumulation of investments being destroyed, or the destruction of wealth represented in infrastructure. However, the replacement of the infrastructure would be represented in activity such as construction and cleaning up the areas of devastation. This would, in turn, feed into the GDP figures, such that GDP would see a rise as a result of the devastation of a city. As such, whilst GDP does indeed represent activity, it can not be said to mean 'growth in the economy'. In other words, can replacement and cleaning up of this destroyed infrastructure represent economic growth?

If such a view of economic growth is taken seriously, then the logic of the measure would suggest that a good way to achieve economic growth would be to destroy infrastructure such as factories, roads, bridges, houses etc.

There is an even more significant worry about GDP and the way it is used. An example is taken at random from the news on a Google news search for the term 'US debt % GDP', and produced this article:

The UK is drowning in debt. The total amount owed by our households, firms and the government is staggering – more than five-times our national income. On top of that debt stock, the UK is heading for a 2009 budget deficit of 14pc of GDP – by a long way the biggest in our peace-time history.

I actually support much of what the author of this quote says (Liam Halligan of the Telegraph), but think that he is making a major error using GDP as any kind of a reference point. I will explain why.

As I have already identified, the measure of GDP is a measure of activity in the economy. As such, it is a measure that takes no account of the source of activity, such that a hurricane's devastation might increase GDP. However, included in the level of GDP is the economic activity that is resultant from the debt driven consumption. If we then view the idea that debt is '14pc of GDP' we encounter a problem. What is being measured is the proportion of debt in relation to economic activity that is itself, in part, driven by debt. The economic impact of that debt is itself difficult to quantify.

For example, here are two charts (click to enlarge) from the UK National Statistics website, regarding fiscal deficits:

The problem that arises is that the measure on the left shows the money that is being borrowed, and the chart on the right shows the total economic activity that includes that borrowing. It is when we see how debt driven consumption actually impacts on the economy that the scale of the problem makes sense.

For the sake of simplicity, we might imagine that a small slice of the money that is borrowed by the government is used to pay the salary of one individual. When that individual goes shopping and purchases a shirt, they will spend some of that borrowed money. The purchase of the shirt will register as economic activity. However, the story does not end there. The retailer will then need to order another shirt for stock, and this will then see economic activity in a wholesaler, which in turn might see economic activity from an importer. Furthermore, the money spent on the shirt will contribute to many of the support services that are a necessary part of retail, creating ever more activity. The money will then contribute to the wages of the staff who will then spend the money, creating yet more activity.

In other words, this tiny slice of the government's borrowing will generate activity far in excess of the headline figures, or in this case in excess of the individual's
salary. All of that activity will be recorded in the GDP figures.

The problem that this generates is to ask how the activity that is generated by debt might be stripped out. I will confess that I do not know the answer to this question (comments welcomed), but it is certain that GDP is a measure which has little meaning in the measurement of an economy. More borrowed money results in more activity in the economy such that the measure of the economy becomes a measure of the borrowing against output that includes activity from previous borrowing. The big question here is how a measure that does this might be an indicator of the sustainability of borrowing?

To illustrate this, imagine if a factory's performance was measured against activity rather than cash flow or profitability. The owner of the factory might produce more product if they borrow more money for materials, labour and power, but that would do nothing to indicate the health of the company that owns the factory. If a measure like GDP were used, the output resultant from the borrowing would be seen as an indicator of a healthy business, even though the accumulation of debt would suggest otherwise. However, the measure would consider the debt in relation to the activity, such that the debt accumulation would increase activity, and this would be represented in output. I am not sure this is the clearest description, but I hope the underlying point is clear (if you can phrase it more clearly, please feel free to add a comment).

I will use a related example from a recent post as a further illustration. If an individual earns £50,000, and borrows £10,000 per year, they appear to have an income of £60,000 in their lifestyle. If GDP type measures are used, then the sustainability of the borrowing of £10,000 a year would not be measured on the actual £50,000 of income, but would instead be measured on the apparent income of £60,000 per year. Nobody in their right mind would do such a thing, but this is in effect what GDP measures are doing.

The reason why I highlighted the problem with economic theory at the start of the post is to point out that economics can be a matter of playing with clever ideas. GDP is just such an idea. It seems to be a perfectly rational and clever idea, that an economy's output might be measured through the activity in the economy. However, if an economy is being financed in part by debt, the meaningfulness
of the measure completely disappears. Even when an economy is not partly funded through debt, the Katrina example illustrates how fundamentally flawed the measure actually is. It ceases to have any plausibility. Just as with the drug addiction thesis, GDP is being used by economists to shape government policy, but it should be viewed as a nonsense.

The idea that this measure is one of the most important measures in shaping fiscal and monetary policy is deeply disturbing. In particular, GDP is falling in an environment when there is an explosion in government borrowing. If it were possible to strip out the impact of the government borrowing from these figures, then the situation of the absolute borrowing versus the absolute output without the borrowing would reveal a very, very ugly picture.

We have witnessed a private credit bubble economy (in conjunction with expanding public debt) and have seen the damage that this has wrought. During the entire time the damage was being done, the GDP figures created an illusion of a healthy economy. We are now witnessing a massive increase in public borrowing, and again the GDP figures flatter the relative success of the policy, hiding the severity of the crisis, and likely unsustainable debt. With regards to how unsustainable this policy might be, there appears to be no way to measure this, just as there was no way during the private credit bubble.

The problem that then arises is how to determine the actual health of an economy. The answer is actually surprisingly simple. The actual health of an economy overall is determined by whether the economy can be sustained without any borrowing. If borrowing is necessary in aggregate, whether the source of the borrowing is private or public, the economy is unhealthy. In other words, an economy's sustainability is determined by the ability for the economy to have aggregate output which matches the aggregate consumption.

The only question that remains is how to determine how bad borrowing might be, and for this I can offer no solution. However, in economies like the US and UK, the numbers are shockingly large relative to the history of borrowing, and should therefore be a cause for worry. In particular, when comparisons are possible with the debts accumulated in a period of total war (World War II), then there is real cause for worry. Such comparisons suggest that the situation is indeed extremely bad.

Comments

[Steven Hansen:]

"If GDP type measures are used, then the sustainability of the borrowing of £10,000 a year would not be measured on the actual £50,000 of income, but would instead be measured on the apparent income of £60,000 per year. Nobody in their right mind would do such a thing, but this is in effect what GDP measures are doing."

actually you are wrong that nobody would do that sort of thing - the american government is doing this is spades spending significantly more money than they are taking in.

Jul 12 04:40 AM

[Dave Wrixon:]

The one most important thing the US and other could do to return to long-term growth would be to scrap the GDP measure altogether.

What matters to any economy are core wealth generating activities, particularly not activities that are primarily about distribution and consumption. It is also important not to cloud the issue of wealth generation with relative currency valuation. One medium sized family saloon produced in China is worth pretty much the same as one produced in Detroit. Even more so if a buyer can be found at a profitable margin. The fact that sale price might be much lower than in a New York showroom is almost irrelevant.

To produce a non-subjective and meaningful statistic of core wealth generation is not going to be easy but it is essential. In the meantime then nothing frankly would be better than what we have.

Jul 12 04:49 AM

[coldcall:]

I agree GDP is a confusing benchmark or metric.

First of all they usually measure gdp in monetary terms which again is open to manipulation in how one converts "activity" into monetary units.

Another major problem when we use debt to gdp ratios is we are underestimating the true scale of deficit. A better way to calculate debt would be to work out how much of the gdp is left over above and beyond the "operating costs" which is actually the money left available to de-leverage on a permanent basis.

The scale of debt in the US and UK would be even more frightening if compared to realistic benchmarks.

Jul 12 06:26 AM

[markfl:]

The problem stems from the use of per capita GDP as a measure of wealth. The real question is net worth. Exactly what are the total assets of the United States? We have some idea of the liabilities of the government in terms of its outstanding debt and contractual obligations. However, the moment the government ceases to be able to meet those contracts it becomes insolvent. How does the US meet its Social Security and Medicare contracts? In the future, either with a crushing 20% percent payroll tax and depression or repudiation of the contract. As with the Medicare prescription drug plan, health reform will cost more, not less.

What of the individual with a $250,000/ year income (orthopedic surgeon), $500,000 mortgage, and $100,000 unsecured debt. He has $300,000 in common stock as an asset. One day he suffers a stroke and can neither move his right arm nor speak. Unless his medical practice can produce income without him, he has now become technically bankrupt. It doesn't matter that his practice did $2,500,000 in billing last year (his contribution to GDP).

The wealth of a nation is net worth. If the United States had 11 Trillion on deposit at the Treasury we would be wealthy. In case of emergency we could simply write a check. If the Bank of Japan collapsed we could simply make them a loan for 5 Trillion. We would be wealthy and they would be poor.

The dollar became the world currency because the entire developed world fought a war on its soil and we did not. We were lucky. Our luck will eventually run out, as luck always does.

Jul 12 07:15 AM

[Dave Wrixon:]

No, I am sorry. This is naive. If you have 11 Trillion on deposit at the Treasury, it means nothing unless that money is backed by something. Of course some would maintain that should be Gold, others effectively see it as GDP. My argument would be that net worth is based on the wealth generating segment of the economy. You cannot just say we have XK shopping mails in this country doing $Y Billion of dollars of turnover. That is not wealth generation, that is Self Indulgence. You cannot use Self Indulgence as economic metric.


On Jul 12 07:15 AM markfl wrote:

> The problem stems from the use of per capita GDP as a measure of
> wealth. The real question is net worth. Exactly what are the total
> assets of the United States? We have some idea of the liabilities
> of the government in terms of its outstanding debt and contractual
> obligations. However, the moment the government ceases to be able
> to meet those contracts it becomes insolvent. How does the US meet
> its Social Security and Medicare contracts? In the future, either
> with a crushing 20% percent payroll tax and depression or repudiation
> of the contract. As with the Medicare prescription drug plan, health
> reform will cost more, not less.
>
> What of the individual with a $250,000/ year income (orthopedic surgeon),
> $500,000 mortgage, and $100,000 unsecured debt. He has $300,000 in
> common stock as an asset. One day he suffers a stroke and can neither
> move his right arm nor speak. Unless his medical practice can produce
> income without him, he has now become technically bankrupt. It doesn't
> matter that his practice did $2,500,000 in billing last year (his
> contribution to GDP).
>
> The wealth of a nation is net worth. If the United States had 11
> Trillion on deposit at the Treasury we would be wealthy. In case
> of emergency we could simply write a check. If the Bank of Japan
> collapsed we could simply make them a loan for 5 Trillion. We would
> be wealthy and they would be poor.
>
> The dollar became the world currency because the entire developed
> world fought a war on its soil and we did not. We were lucky. Our
> luck will eventually run out, as luck always does.

Jul 12 07:47 AM

[American in...:]

The author's argument is not compelling.

First of all, you need to look at total debt of a country relative to its income, not total government debt relative to that country's income.

Over the next years both the household and corporate sectors will continue to increase their savings and decreasing their debt.

I suspect we will see that US total debt does not increase any where as much as people expect due to the plunge in private sector debt.

Second of all, debt is not itself bad or good. Your article is full of Protestant moralizing about debt.

Clearly there is good debt and bad debt.

Jul 12 09:13 AM

[Clayton:]

GDP figures have to be tempered with "net worth" figures.

GDP be damned. What people should really look at is if a country is increasing or decreasing its net worth. If a good portion of GDP activity is being done with equity instead of debt, and the economy is getting a return on investment, then the country's net worth should go up and that should be a real good sign (unless it is artificially going up from a fed caused bubble).

GDP is so 1970s....

Jul 12 10:22 AM

[SisyphusStone:]

Semantics aside and ignoring anti-Protestant shoulder-chip comments, this is a great article in that it raises a highly pertinent point for discussion.

We are all familiar with the concept of GDP/GNP, frequently look at and refer to graphics based on it; but how many of us could honestly say that we have ever stopped to question the metric in a way that this article does to gain a true insight into what it does - or doesn't - tell us? A form of 'due diligence' really.

Well posted 'Cynicus'

Jul 12 10:51 AM

[huangthomas:]

GDP is a measure of the economic activity. It is not a measure of national debt or wealth. Of course it has nothing to indicate the sewer backup in your house. What more do we expect from GDP?

Jul 12 10:58 AM

[Gregman2:]

I think you should consider velocity as the turn over rate of activity. You used the 50,000 income/10,000 debt example. If the turnover and margins are high enough the debt gets serviced quickly and revolves.
Healthy businesses do this all the time. But, if the debt accrues due to
slight velocity and flat or falling margins there's a serious problem. Anyway, thanks for sharing your thoughts.

Jul 12 01:08 PM

[John Lounsbury:]

The relationships between productivity, wealth creation, economic activity and debt are complex. Kudos to the author for taking this mess on. A large number of commenters have discussed points that center on the nature of debt and the use of debt.

I have a simple concept: good debt and bad debt. Good debt funds construction of the means of production of things of utility. Bad debt funds consumption and higher leveraging of existing debt.

Getting beyond the simple concept and making analytical applications to the real economy is quite difficult, as the author has emphasized. That is no reason to stop trying to figure it out, though.

Jul 12 02:00 PM

[TradingHelp...:]

I agree much of the activity included in GDP data is not real economic growth. As John mentioned, immediately above, debt spent on speculative financial transactions and unsustainable inflation prompting consumption are two of the leading problems and at best just borrow from future income and at worst create asset price bubbles. And we know what happens to asset price bubbles.

So we can agree GDP is an imperfect measure, but I would still prefer to see positive, rather than negative, GDP.

Jul 12 02:16 PM

[Ryan Barnes:]

There is no doubt that GDP is an imperfect measure of an economy's "health" as you put it. Any number of the calculation metrics and methods can be debated our outright disregarded, and these topics have indeed been debated for decades.

But the example you cite as proof of GDP's flaws is inaccurate. Hurricane Katrina is merely one of a million devices of "economic destruction" that occur every day...albeit a larger and more unfortunate one. When I drink a can of soda, I "destroy" that unit of production. That unit of production must be rebuilt so that I can destroy it again. This is the nature of economics at its most basic.

EVERYTHING created in an economy is a failing asset; it's only a matter of how long its useful life is. Roads, bridges, airplanes, clothes, houses, food, and even jobs. So while rebuilding a city destroyed by natural disaster is indeed a terrible thing, it is not "fake" production. If you were to one-off this, you'd be one-offing every unit of production ever created.

I'm all for a healthy debate of the usefulness of GDP for this purpose or that, but we've got to get our ECON 101 out of the way first, folks. The strength of an economy is in its ability to be ready to produce what is needed and what is wanted, without creating unsustainable side effects. Our rising national debt is viewed by many as one of the latter, but again, how much debt a country (or person) can service is merely a function of dependability and foresight into future cash flows.

The crash of our financial spinal cord in the past 24 months occurred because the dependability of what were once considered safe cash flows disappeared due to falling home prices.

Best of luck to all in your investing (and debating) efforts.

Jul 12 03:44 PM

[M-F:]

If you want to measure the sustainability of a country's economy, GDP vs Debt is probably not as good as looking at the trade deficit or current account deficit. The trade deficit does not lie the same way the GDP can lie. The US has had significant trade deficits for years now though, and still, no one knows when the US dollar will have to adjust downwards to balance the trade deficit.

Jul 12 04:47 PM

[Ryu Mei Co:]

great insight. I learn more everyday.

Jul 12 09:48 PM

[kotika98:]

if you destroy a bridge that is being used to transport goods, the destruction of the bridge will take out of GDP sales of all those goods. If the bridge had a tollbooth on it, the negative impact on GDP is even more direct. The author postulates that the destruction of infrastructure would "add" to GDP, and the basic argument here is idiotic.

Second point is that once reconstruction starts sometime later, often couple years down the road we should indeed count the activity in GDP because construction workers get payed, machinery gets bought etc... so there is nothing in this article aside from moralizing.

Jul 13 02:21 AM

[MSimon:]

Suppose the reason people chronically take pain relievers is to relieve chronic pain. Suppose pain relief has a higher value than the cost of addiction.

Then further assume that the medical profession does not fully understand all causes of pain. It has happened before with fibromyalgia. People with that disease (which was for some time not well understood) were assumed to be addicts. Now they are considered people with real medical problems.

There is considerable reason to believe (on medical grounds) that this may also be the case with most other cases of drug addiction.

I think the best point you can make is that the appropriate utility coefficients are not known in all cases. The fact that addiction is now considered to be 50% genetically determined points to the the fact that there is no universal set of utility coefficients. They vary depending on the nature of the population.

So in the case of addiction I have to conclude Becker is correct. I have a considerable amount of supporting evidence if you are interested.

You can visit my blog for my e-mail addy for further discussion.

M. Simon

Jul 13 09:00 AM

[Robert0713:]

In 1971 I wrote my senior thesis on the process of de-industrialization, using contemporary Uruguay as the subject. This process of converting from a productive to financial economy was done on purpose by both capitalists and government. The rationale was the same then and there as here today: the ROI for financial services (since the capital per employee is so small) was seen to be greater than for industrial production. Uruguay wished to become the Switzerland of South America. Didn't work out too well. The just got an urban insurgency, the Tupamaros. I predicted that the US was headed down the same road. And here we are.

Jul 13 09:20 AM

[WalterJR:]

Thanks for taking up this topic. I have long been skeptical of the GDP and its components -- and its status as a magic number around which all else revolves. I hope you continue to address the topic in the future.

Jul 13 10:33 AM

[jimmy46:]

The dollar became the world currency because the entire developed world fought a war on its soil and we did not""""""

NOT TRUE, EXCEPT FOR GREAT BRITAIN & THE US,
ALL THE MAJOR COUNTRIES IN THE WORLD HAVE DEFAULTED ON THEIR CURRENCIES AT LEAST ONCE IN THE LAST 200 YEARS.

THAT'S WHY THE POUND & THE DOLLAR HAVE SPECIAL STATUS.

Jul 13 02:40 PM

[bfarms:]

On a similar note: How do we account for things which are basically FREE "capital" ? Such as the very earth itself, and many of the creatures who help us one way or another? such as insects to mention one class of creatures we couldn't live without.
Where is that accounted for? By free capital i mean land, water, and air. No one is paying to breath and no one had to "build" the earth or the waterways or the skies.

Where is it accounted for?

Jul 13 03:07 PM

[bfarms:]

A true good "measure" of so-called "production" would be compared against nature's own ability to provide and to forbear.
Is it there to "produce"? Will it be "there" to produce in the future if we need or want it? the gyrations of finance mean little compared to the basic ability to produce w/o ruin. That's why no one is in bad shape at this moment. We have lots of free capital and ability to produce all we need or want regardless of so-called financial or credit problems.

(because the truest measure of health of human "production"
is primarily only constrained, and is reliant entirely, upon something vastly more powerful and essential than "credit" or "cashflow", and namely it's the earth and all the creatures.)

Jul 13 03:22 PM

[MSimon:]

As to the concept of "wasted effort". In research if 50% of your research efforts are not failing you are not learning as much as you can from your research dollar. And 50% is ideal. More than that or less than that is less than ideal. And the 50% number is based on information theory or its reciprocal entropy. It is fundamental. i.e. physics.

Jul 13 04:07 PM

[MSimon:]

"The wealth of a nation is net worth. If the United States had 11 Trillion on deposit at the Treasury we would be wealthy. In case of emergency we could simply write a check. If the Bank of Japan collapsed we could simply make them a loan for 5 Trillion. We would be wealthy and they would be poor."

The US Government has a LOT of capital that is not currently counted in the official figures. I'm referring to the land that the government owns. There are other assets as well.

Jul 13 04:29 PM

[Cynicus Eco...:]

Ryan, I should have replied to your comment a little earlier. Thanks for your thoughts.

You are quite right that everything in the economy is a failing asset. The key question is when it will fail. As such, a bridge with a 100 year life being destroyed after a year is a terrible destruction of value. The bridge represents a store of the value of labour, for example the miners who provided materials, the steel mills, the construction workers etc. The stored value of that labour is not being utilised, but being destroyed.

My concern is the Econ 101 does not teach such a basic principle. Destroying 'stuff' early is simply throwing away stored value. A commentator on my blog put it this way.

"If you destroyed you own house and built a new one, would it help you pay off your mortgage? Going by GDP, it would have to! Destroying your house and building a new one will not make you wealthy, let alone wealthier. In fact, it will make you poorer!, because of all the time, effort, energy, material and natural resources put into it.Not to mention environment"

cynicuseconomicus.blog...

The question to ask is how any measure which allows the early destruction of an asset might result in economic growth. For example, baking a loaf of bread and eating one slice before throwing the rest away would normally be called a 'waste'. Econ 101 needs some work I think.

Kotika 98:

Think of a factory output as activity. Think of the activity necessary to build the factory. Think of the activity of supported by a bridge. Think of the activity necessary to build the bridge. I think that you will find that rebuilding both would create more activity than the activity resultant from their being in place. Whilst there is a loss of activity from the destruction of the asset, the replacement will certainly create more short run activity, then roughly the same output will be achieved when completed.

On the other hand, if the asset was still there (e.g. your bridge example), then there is the opportunity of using the money to, for example, build another bridge in another place.

General: Thanks for the many other comments, and I will try to address more if time allows.

Jul 13 06:03 PM

[Firat Ünlü:]

Great to see your posts appear on SA. Been following your blog for a long time and commented on occasion. Appreciate your outlook on economics which is a world away from the rubbish that is being taught elsewhere.
GDP as a wealth measure is ridiculously flawed, the effect of the exchange rate alone distorts the true picture (thankfully we've got PPP for that).

Jul 13 08:44 PM

[St Alphonso:]

My favorite phrase is "Never confuse activity with progress". I couldn't agree with this more.

Jul 13 08:49 PM

[ed233:]

This article is based upon three interpretations of GDP. If you were to accept the authors interpretations then you could obviously fall for the straw man effect which in the end provides the reader with bunkum. Gross domestic product is nothing more than a measure. It's an amount based in dollars for production at a particular period of time. Standing alone as a figure it is meaningless in the sense it doesn't tell you much as to where we are going. However referencing this figure against past figures for GDP on a quarterly or anuall basis, then it provides meaning. Let's take a simple illustration to make this point. If a country has a GDP of say 100 million and suppose this same country owed 10 million then you have a reference point and can determine the percentage of debt to the GDP. The health of an economy is measured by its production of goods and services measured in dollars over a specified period of time(GDP) which gives some guidence of the countrie's ability to meet its debt obligations if it is referenced to the total debt outstanding. It's much like having an annual salary with an expectation of the salary increasing for the next period. Your ability to service your debt is based upon your salary. So for simplicity purposes we could say your salary is like the GDP. If you evaluate the GDP say for the USA and you measure the expectation in the growth of the debt based upon administrative policies then it doesn't take a rocket scientist to determine that your growth in GDP is insufficient to pay for the expected growth in debt obligations plus real interest charges going forward. This is why the USA is essentially bankrupt. It remains in this state because it essentially has to print I OWE YOU'S (printing dollars). So long as the international community is prepared to accept this debasement of their foreign dollar holdings then the government isn't challenged. The real problem occurs when the international community refuses to accept the debased dollar especially if GDP is not increasing at the same rate as the expected debt. When confidence in the USA dollar erodes then you could have a potential run on the dollar which in turn will accelerate into further decline with the result of a potential default. Some think it could never happen. Don't be too sure. Expensive administration policies could be the defining moment. It might be time to start buying gold. LOL Looking after your money.

Jul 15 09:29 PM