What is U.S. Debt? - P2: Comparing Debt to GDP

It is easy to look at the trillions of dollars that the U.S. owes and think, "Geez, that's a lot of money." And it is. But is it too much money? To decide this, a lot of economists like to look at debt and compare it to our Gross Domestic Product (GDP). 

A few economists recently looked at the data on debt and economic growth from 44 countries over 200 years. These economists found that when a country's debt is below 90% of its GDP, the debt doesn't seem to effect the country's economy at all. But when it gets over 90%, suddenly that country begins to suffer a 1% decline in economic growth. 

Today, the U.S. debt is over 100% of its GDP. The same economists have warned that we need to start correcting course now so that our mountain of debt doesn't fight against our economic recovery.

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[Mogeez]

Dude I love your videos, they explain things so perfectly, and the conclusion to part 1 made me click the link immediately.

[dramachiky]

woaahhh, with each video, I become more and more amazed!!! You guys are SO AMAZING!

[Jengle]

Hi you should probably change this - or add a caveat. A student found that the paper by Rogoff and Reinhart was not accurate.

[northstar]

I highly recommend looking up 'monetary sovereignty' or 'modern monetary theory'. You seem to have left out of your explanation the fact that the United States is a monetarily sovereign nation, in control of the world's most important currency. This makes a HUGE difference in how the economy works. If more citizens understood this, there would be much less fear of the 'deficit' and a realization that there can be enough money to make life better for more Americans.

[koolhanddavey]

uh oh, Reinhart and Rogoffs study was not academically vetted, in fact was said to have partly resulted from an xcel spreadsheet error...

[theMOCmaster]

Military isn't 35%, it's around 13%...

[milianviolet]

I wish you guys taught all of my college courses.

[dannyflyerboy]

Dude! How do you make your awesome Animations/Cartoons?

[chrisccc]

There are some major problems as to what is included in the GDP. Financial charges to account holders is actually considered part of the GDP. Credit card fees are considered part of the GDP. Interest charges are considered part of the GDP. Some 30% of the US GDP contributors are not really producing anything but Debt. This is what will bring the house of cards down. If a true debt to GDP ratio was conducted, that ratio would be around the 400% mark.

[NeroDesignz]

@epipheo I was searching for part 2 for a long time.. BEFORE it even came out :(

[sirellyn]

Don't look at debt to GDP, the calculations for GDP change YEARLY. For example see how high it was in 1947? Well if they calculated GDP in 1947 the way we do today, it would have been less than 1/3rd that amount.

Which means our debt to GDP ratio if calculated the same today would be well over 100%.

Unemployment numbers are the same, they were calculated MUCH differently during the great depression, and we actually have depression level unemployment.

Apples to apples if you must compare.

[veramann]

Japan debt-to-GDP ration in the 1990s was about 200%, and Japan came out of its recession w/ spending.

[robertomasymas]

this is good. there's another number, which is 60%, which the european union uses. this marks the threshold at which known free market controls can resolve debt (ie, without using non-free market manipulation, like bailing out banks).

[ceehak]

The Reinhart and Rogoff paper isn't a great one to cite even though it's so popular. The 90% cutoff point was proven to be wrong as they used incorrect data when calculating their model. However, it has already been observed that lower growth is correlated with increasing debt-to-gdp. The big caveat being that economists have not determined whether this CORRELATION is CAUSATION or if the relationship runs the other way i.e. do we observe higher debt as a result of lower growth due to lower taxes being collected etc.... ?

[trangnguyen-sqzy]

The video sound is pretty good, beyond my imagination

[taufikmarasabessy]

The US also need to control the population growth. The number of birth is way bigger than number of death. The advance development on health care has help to repress the number of death, on the other hand there's nothing of significant can repress the number of birth. Therefore, your government has to spend more from its treasury to follow up with population growth.

[sirellyn]

Neither would get it done. The US will have to default and revalue it's currency OR issue new currency eventually (or have someone else issue new currency like the IMF)

The revalue is the best of those bad options, and the longer it takes for it to occur the larger the instant jump of prices when it does.

[GibusWearingMann]

Just noticed we're comparing GPD to GDP here.

[IsandreaVegamore]

This is so good. I think I get it now.

[fakemadereal]

Well thanks guy. You now have all of us depressed, and have offered no solution. You failed to mention Japan, which has a two hundred percent debt.