Larry,
Thanks for the article. I have a question though. The chart showing credit as a percentage of GDP I find believable, but yesterday in IBD they published a chart showing that this "bubble of government debt" is actually not high at all when normalized for GDP.
The interrelationships of macroeconomics are perhaps the weakest area of my financial education so I'm confused by seeing what I think is the same issue spun differently by bears and bulls. Can you (or anyone else for that matter) help clear it up for me?
Thanks,
H

Howard,

I didn’t read the IBD article so I’m at a disadvantage. But you’re citing a good example of why they call economics the dismal science. Someone once said that economics is the only field in which two people can share a Nobel Prize for saying opposing things.

I draw a distinction between current account deficits and long term liabilities. I agree with those that say hand wringing over current account deficits is overblown. The operating deficit is lower as a percentage of GDP than it was in the 80’s. In fact, I would rather see deficits than surpluses. A surplus would mean the government has overcharged us and has too much of our money. And I would rather them have too little rather than too much. But long term government liabilities and total private debt is another matter entirely. And I don’t see any way it’s not going to be a big problem.

Larry

Larry,
Having seen the IBD I can say you hit the nail on the head. That helps me see the difference well. One is talking about current budget shortfalls and the other about long term debt. At least now I can see how two knowledgeable people can see the same data and have opposite opinions: they aren't looking at the same data at all, they just say they are.
Thanks again,
h