I thought Paul Ryan’s comments were interesting, in that we finally have a politician who is, unlike all the mainstream economists, actually looking at debt levels instead of GDP and the money supply.
“We’re on a debt crisis path. We are on a path where the government goes from 20 percent of GDP, to 40 percent then 60 percent of GDP. We’re on a path where our debt goes from about 68 percent of GDP to 800 percent of GDP over the three-generation window,” Ryan said.
“I asked CBO to run the model going out and they told me that their computer simulation crashes in 2037 because CBO can’t conceive of any way in which the economy can continue past the year 2037 because of debt burdens,” said Ryan.
I also found the CBO simulation crash of 2037 to be fascinating, given that I have predicted 2033 to be the date by which the United States will have either disintegrated or lost its national sovereignty. What Ryan, like Sean Hannity yesterday, leaves out is that government debt is only part of the equation and a relatively small part at that. The combined Federal/State & Local debt has increased from 16% of the total to 22.5% since 2005. If private debt continues to decline, from 31.5% to 27% for financials and 28% to 24.3% for households, then government debt will have to increase in order to prevent the economy from shrinking.
This is why I said that there is no easy way out of it. The Ryan plan isn’t awful, but it isn’t sufficient either.