Niall Ferguson: Runaway debt is mortgaging our future

[Ad Orientem]

http://www.telegraph.co.uk/finance/fina ... ation.html

[Pointedstick]

Where exactly is this social contract thingy? I can't remember signing one. I'd love to see it; maybe then I could finally get a firm handle on just what benefits I actually signed up to receive and what I have to give up to receive them, rather than relying on the other party to tell me both of these things and threaten to hurt me if I protest. Apparently, without realizing it, I signed up to subsidize old people until I become one myself.

[Gumby]

What a terrible editorial. Nothing but fear mongering and politically charged rhetoric. Not only does the editorial fail to grasp what debt-based money is, but as Robert Shiller pointed out, Debt to GDP ratios are pretty much meaningless...

See: Debt and Delusion

Here in the US, it might seem like an image of our future, as public debt comes perilously close to 100% of annual GDP and continues to rise. But maybe this image is just a bit too vivid in our imaginations. Could it be that people think that a country becomes insolvent when its debt exceeds 100% of GDP?

That would clearly be nonsense. After all, debt (which is measured in currency units) and GDP (which is measured in currency units per unit of time) yields a ratio in units of pure time. There is nothing special about using a year as that unit. A year is the time that it takes for the earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance.

We should remember this from high school science: always pay attention to units of measurement. Get the units wrong and you are totally befuddled.

Source: Robert J. Shiller: Debt and Delusion