About GDP and Debt Ratio

Professor Paul Krugman discussed the Federal debt and GDP ratio in his blog. He compared the debt after the World War II and the debt in Ragan’s era with the debt ratio today. He concluded that Federal debt ratio go up to 70% of GDP should still manage. His opinion seriously misled people. My commends about his terrible concepts in his blog was deleted.

The major mistake he made was that he just talks about ratio we once had after the Second World and ignore the changing of environment. After the Second World War, 50% of the exported products in the world were made in the United States. Our steel, motor companies made good profit at that golden age. It helped us to pay off our debt that was above 80% of our GDP. Another thing is that GDP in those days must be much lower than today’s GDP as well as the dollar amount of debt. Lower GDP give us protencial to increase our products and lower debt amount can be handled easily. We ccn handle things then doesn’t mean that we are fine today. Ignoring the actual dollars amount and talk about the ratio is another mislead our economicists created.
We can not even compare Ragan’s era and now because China and India were still weak 20 years ago. Today, countries from all over the world export their production to the United States. Our trade deficit can go up to half trillion dollars annual. Many of our businesses move to over sea to avoid the high salary rate and high health insurance premiums.Companies that stay in America are hardly make money. The GDP they contribute have no meaning because their profit is Zero. Yet our economists still ignore the profit range and talk about GDP and debt ratio.
They said GDP and debt ratio up to 70% is OK also because Japan’s debt ratio is in that range. They forget that Japan is holding almost 700 billion dollars bonds that issued by American Government. Beside most of Japan government debt are hold by Japanses who have good savings. Unfortuntly, most of our debt are hold by foreiners.
More or less GDP reflects government’s income that can be used to pay off debts. However, we still have to know 1. How do we compose GDP? 2. How many percent of GDP is profit? Those profit belongs to whom. 3. How many percent of government’s income from GDP can be used for paying off national debt?

How do we compose GDP?  All these years, our financial institutes have no products except for making bubbles. We count their earning on the book into GDP and ignor the deficiency they created. Our agriculture products being supported by our government and create little bit profits for this country yet they have contribution to GDP. Our legal companies, insurance companies and healthy care field created unnecessary expenses for the public and their profit of cause are a part of GDP. Except military industry and some high-tech companies I don’t see that many American businesses have real profit. Warmongers will not use their income to pay off our national debt. GDP just reflacts the the economic activities and doesn’t reflact the profit range and profit distribution.
Even though we accept that 5% of our GDP is our profit and can be used to pay off our debt we are still in deep trap. Our debt is 70% of our GDP and if the interest rate of our debt is 5% it means 70% of our income will be used to pay for just interest ( debt will be still there). In another word, we have only 30% income leave for our food and shelters. This will be the picture of our children’s live in the future.

Some one may said government’s tax income in GDP obviously is higher than 5%. No matter how much government might get through tax, theoritically only government’s suplus are used to pay off government debt. The fact is that all the governments tax income have already budgeted for certain expenses. In 2010  Federal government has 140.4 billion deficit and in 2009 their tax decrease 25%. Under this kind situation, how can we pay off our debt? How can we say that National debt go up to 70% of GDP is still good to be handle?
Our economists mislead publics in a very horrible way. Being influenced by this kind of concepts, no wonder our economic collapse. When things collapse economists are the first people who run away. They will say politicians destroy people’s faith and it has nothing to do with economists’ calculation. Politicians will not run away but jump up and down. They will promise that they can solve the problem. When they can not meet their goal they step down and let the other party try. They simply fool the public by turns. Talking about GDP and debt ratio is a way they fool us at the moment.

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