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Debt to GDP - outdated?

  • 13-10-2019 9:35am
    #1
    Franz Von Peppercorn II
    Closed Accounts Posts: 2,398 ✭✭✭


    The problem with debt to GDP ratios is its comparing apples to oranges. A store to a flow.

    GDP is often mistakenly defined as the wealth of the country but it’s really the income. Debt is a sum of money owed but sovereign debt is rarely paid off, its rolled over, so the cost is always the yearly interest repayments. This is what the ratio should be - gdp to interest repayments.

    In an era of low interest rates then it should be easy to load up on more debt. In an era of negative interest rates you could argue that you keep loading up until they go positive. Certainly negative interest rates show that bonds are in huge demand.

    Is it time to revise the Maastricht treaty and to change our attitudes to this?


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