Friday, May 28, 2010

Deficit Spending - Percent of Federal Expenditures



Courtesy of St. Louis Fed FRED data update for 1Q2010, this plot uses two series of SAAR quarterly data: FGRECPT, which is federal government receipts and FGEXPND, which is federal government expenditures. I then calculate the percent of total federal expenditures that is borrowed ([FGRECPT-FGEXPND]/FGEXPND).

So, the question is what is the tipping point? Most analysis in the public domain seems centered around total debt as a function of GDP, and 100% as some kind of threshold...anyone see any papers using this framework?

22 comments:

David X Johnson said...

Nicely done. You pieced it together in a way that says it all.

To your specific question, it's not the total debt as %GDP that matters so much as the service on the debt. Much of the debt has been financed at short-term rates and rolled over each month. If those rates go up, we're in for a world of hurt.

Robert Sheldon said...

Two items:

1) According to Peter Bernholz (Professor Emeritus of Economics in the Center for Economics
and Business at the University of Basel) There have been 28 episodes of hyperinflation of
national economies in the 20th century, with 20 occurring after 1980. The 12 largest episodes of hyperinflations were each caused by financing huge public budget deficits through money creation. He concludes that the tipping point for hyperinflation occurs when the government’s deficit exceeded 40% of its expenditures.

2) Another study I have recently perused was conducted by Dr. Woody Brock of Strategic Economic Decisions (www.sedinc.com) on why you cannot grow government debt well above nominal GDP without causing severe disruptions to the overall economic system. He shows that adding 8% of GDP (a worst case scenario) to the debt each year would be disastrous for the US. We are currently experiencing an 11% rate, and the CBO has just released estimates that imply that we should expect even worse.

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退 said...

很棒的分享~祝福你........................................

energyecon said...

Robert,

Many thanks!

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