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Monday, January 11, 2010

Study: Obama Debt Will Cripple U.S. Economy



Barack Obama isn't much of a student of history (unless we're dealing with 60s radicals) but he should bone up on 200 years of economic history that shows that massive debt (like the kind Obama has piled on) will derail the U.S. economy.

From an article by Kevin G. Hall of McClatchy Newspapers:
A new report that reviewed 200 years of economic data from 44 nations has reached an ominous conclusion for the world's largest economy: Almost without exception, countries that are as highly indebted as the United States is today grow at sub-par rates.

The report, "Growth in a Time of Debt," was written by two respected academic researchers who recently published a thick book on eight centuries of economic crises.

The study by Carmen Reinhart and Kenneth Rogoff — well-regarded economists from the University of Maryland and Harvard University, respectively — found statistical breaks at different points in the relationship between a country's national debt and its gross domestic product. GDP is the broadest measure of a country's trade in goods and services.

When a nation's debt exceeds 60 percent of its GDP, its growth rate slows precipitously, the study found. When that ratio exceeds 90 percent, nations' economies barely grow, and can even contract.

The U.S. national debt is at roughly 84 percent of the country's GDP, and it's projected to cross the authors' 90-percent threshold late this year or early next year.

The implication is stark: The authors don't say that the U.S. economy can't grow briskly despite even higher debt, but if it does, it would be an outlier in roughly 200 years of economic statistics.

"We're racing toward this (90 percent) limit, and maybe it will prove a soft limit for the United States. But not forever," Rogoff said. "I think it is certainly a cautionary tale."
Read the full story at the link below:

High U.S. debt means slower growth, history suggests | McClatchy

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