US Hits 100 Percent Debt To GDP Ratio

The Treasury Department has announced that the United States national debt to GDP ration has reached 100 percent. This is horrific news and portends economic disaster.

Troublesome History

The history of modern civilization is unique in that it contains some very simple figures that always act as causation for a certain result. In the case of debt, what is clear is that any country who sees its debt levels reach 90 percent or more of gross domestic product [GDP] starts to fail as an economic entity. The problem is the debt level acts as a parking break on the progress of the economy. The end result is there is either a total economic collapse or stagnation. Either is a brutal outcome.

Why does all this matter? Well, the United States hit the infamous threshold of 100 percent debt to GDP on August 4, 2011. Yes, we blew through the 90 percent threshold and steamed right on up to and past the 100 percent level. The result is we now have an economy that was growing weakly starting to turn over again into another recession. This is leading to a lack of stability, which we can see in the wild stock market fluctuations.

The Japan Example

So, what does the United States face moving forward? If we are lucky, we will follow a path like Japan. Japan has a huge debt to GDP ratio of more than 200 percent. The result of this huge debt level has been a toxic banking system and an economy that barely grows at all. This has been the case for the last 20 years, a period in which Japan has suffered economically with companies really only making money outside of the country, to wit, Toyota, Honda, Sony and what have you selling overseas.

Sadly, the United States will not get off so luckily. Japan has a unique debt situation because nearly all of its debt is actually owned by Japanese companies and individuals. Given this, there is no way the debt is going to be flushed out onto the open market. The United States, on the other hand, has about 40 percent of its debt owned by foreign investors with China and, ironically, Japan being the two biggest holders. Regardless, we do not have the safety lines that Japan does, so serious economic instability will be coming along quickly if it isn’t already here now. Yes, what we are going through now could become the norm. How depressing is that?

China Not Immune

You may have heard that China has been making some rather blunt noises about us getting our economic matters in order. There are two reasons for this. First, China owns about $2 trillion of our debt. We are devaluing our dollar, which is crushing the value of their investments. As you can imagine, they are none to pleased with this.

The bigger issue, however, is China is tied into the U.S. economy so tightly that what happens to us happens to them. If the United States falls back into a major recession, then demand will drop. When demand drops, orders in China do as well and that means the Chinese economy slams to a halt. The impact of this is increased unemployment, which is the biggest fear of a communist government.

All indications are the United States and China are indeed circling the drain. There has been almost no positive economic news in the U.S. this quarter. All the data points to a severe slow down and perhaps recession. The thing that must scare China is orders for Christmas items by companies in the United States are extremely low. In short, our pain will soon become theirs.

The national debt of the United States has long been ignored, which is too bad. Now that we have a 100 percent debt to GDP ratio, there will be no avoiding it and the slaughter it is going to cause for our national and the world.

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