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U.S. Government Debt vs. GDP

U.S. Government Debt vs. GDP

Chart of the Week #8

I don’t usually do these more than once a week unless I come across something really pressing that I want to share with you. But after a reader named Laramie made an interesting comment under the chart I published earlier this week, showing U.S. government historical debt, I figured this topic needed a follow-up for more context. Here’s a snippet of what he wrote:

We know a debt level at 120% or more of GDP eventually leads to chaos in countries that do not have the world’s reserve currency.

Laramie is spot-on. Once a country reaches a certain level of debt relative to its economy, something tends to break. And usually, it’s not just one thing.

As it happens today under Biden, the U.S. government’s $34.8 trillion debt is already about 125% of America’s Gross Domestic Product (GDP). This places us in the company of nations like Venezuela, Sudan, and Lebanon on the list of Top 10 countries with the highest debt-to-GDP ratios.

None of these countries are successful, vibrant economies, or places you’d want to hang your hat in — quite the opposite. It’s just not a great club to be a part of.

And what’s really frustrating is that things haven’t always been like this in the good ol’ US of A. In fact, the only comparable period when the nation was this deep in debt relative to its economy was during World War II and its immediate aftermath. Not even the years of the Great Depression came close. Take a look at the chart below.

Just think about it — it took the mother of all emergencies, a world war no less, to bring the U.S. debt-to-GDP ratio to where it is now. If that doesn’t give you pause, I’m not sure what would.

…click on the above link to read the rest of the article…

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