How does the debt:GDP ratio affect the country's economy?
"Is it not that bad? Depends how bad is bad. The problems causes by a government having large debt are similar to those caused by an individual having large debt. The big issue is: More and more of your income goes to paying interest on the debt, and is thus not available for spending on goods and services. If it gets bad enough, you find you cannot make payments, you start defaulting on loans, and then you have to make serious sacrifices, like selling your property to pay the debt. Nations have an advantage over individuals in that they can sometimes repudiate debt, i.e. simply declare that they are not going to pay. Lenders can then refuse to give them more money, but that doesn't get their original loans paid back. In theory other nations could send in troops to seize property to pay the loan, but this is a very extreme solution. Totally aside from any moral considerations, modern warfare is very expensive, it's likely the war would cost you more than you'd recover on the debt. How much debt is too much? It's hard to give a number, any more than one could give a ""maximum acceptable debt"" for an individual. American banks have a rule of thumb that they won't normally loan you money if your total debt payments would be more than 1/3 of your income. I've never come close to that, that seems awfully high to me. But, say, a young person just starting out so he's not making a lot of money, and he lives someplace with high housing prices, might find this painful but acceptable. Etc."
It appears that co-signing does impact your debt-to-income ratio, at least in the US.  An article on Kiplinger says: An article on Forbes agrees saying: There is a similar question here. The Greece debt crisis started after the Global financial crisis. Let's say 2008 they were indebted with 103 % of their annual Economic Output ( GDP ). This rose to 175 % of GDP in 2013. Different reasons.   * their GDP dropped about 1/3 from '08-&gt;'13 * economy based on olive oil and tourism was unsustainable * huge public service sector ( military and ministries)   Greece could not be trusted to pay back loans, so the European Union had to jump in to be a lender of last resort. In the middle of this year, they finally offered the first tranche of treasuries. So they are slowly coming back to be stabilized.  But Change is slow. They are still above 175 % of GDP in debt. They still have negative growth and they still need to rely on help from Allies.   Now that the German elections are over, you might hear something about the crisis again. I think there is supposed to be negotiations about future aid for Greece.  Greece already had substantial hidden debt cuts( extension of their bay back period and so on). But you since it is a political subject, you can only do so much till the politicians start to fear a backlash from their constituents. "This is the best tl;dr I could make, [original](http://voxeu.org/article/investing-roads-versus-schools) reduced by 94%. (I'm a bot) ***** &gt; Although public investment in roads represents an important engine of growth for many developing countries, investing in schools would appear to be an even more pressing need for them.  &gt; For a prolonged time the economy enjoys faster growth by investing only in roads, and it takes about a generation for the output obtained by investing in schools to overtake that delivered by investing in roads.  &gt; On the one hand, it shrinks the delay with which output resulting from investing in schools overtakes that from investing in roads and results in very similar paths of public debt.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6tkm6v/is_it_better_to_invest_in_roads_or_schools/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~190257 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **schools**^#1 **investment**^#2 **public**^#3 **roads**^#4 **spend**^#5" Should voters care? What is the scenario in which this debt actually becomes a problem? It seems to me that the money from this debt is largely going into the pockets of US Citizens, so less debt would mean less prosperity for Americans. What are the arguments against this assumption? Lots of countries *have* printed themselves away from debt. Not all inflation turns into a death spiral like Zimbabwe (or Weimar Germany) did, for that you need to have a really shitty economy that no-one believes in.  The problem with Japan right now is that they are trying to print their debt away, but as they do so, their currency *appreciates*. Gold medal for the first one who manages to explain that one. &gt; A significant proportion of recent economic growth has relied on borrowed money -- today standing at a dizzying 325 percent of global gross domestic product. Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet. Income inequality has been increasing quite a bit.  This means the rich are getting richer, with everyone else getting poorer.  The handful of rich peOple can't generate much economic activity.  They, for example, only eat 3 meals a day, buy a few cars a piece, own a few homes apiece, etc.  The massive numbers of people in the middle and lower cannot buy as much stuff as they used to.  For example, they eat out less; hold off buying that new car; go to fewer concerts, don't go on vacation, etc.   This lowers demand all around.  Less demand equals less economic activity.  Governmental austerity will only make matters worse, as this will lower demand even more, producing less economic activity.  This has been and continues happening in Europe big-time.  Germany is pretty the only country that ramped up government spending in the last few years, and bought their way out ofmtheir recession.  Greece, on the other hand, has had nothing but austerity and is circling the drain.    Tl;dr 1% lots of money can't spend enough--99% little money, just can't spend. &gt;In the simple equation of debt-to-GDP you want GDP to grow much quicker than debt.  This is similar to having your income growing quicker than your actual debt.  The answer of course is to adopt a growth-oriented fiscal stance. The opposite of austerity. Open season on deficit hawks. I was thinking down the road about what may happen as some countries pile on debt and others are more responsible. I've spent a lot of time oversea and talented people in the capital cities are really mobile these days.  Right now there's a small brain drain to the benefit of Switzerland which has some really innovative people moving there. What if a large country like Germany were to do on a larger scale? Educated workforce, innovative and if you overlook a really ugly period, a great history of innovation.   It seems they could bring in a lot of people from Japan and (increasingly) the US as they head slowly toward debt of 200% of GDP. Why would talented people who are highly mobile want to stay in a country where the debt will take 30 years to repay mostly on the back of the talented high earning people? Nobody is suggesting that China hasn't had massive amounts of growth. However, even a relatively small discrepancy (for instance, 6.9% against 6.5%, similar to what appears in the article) can compound in to a huge difference over years.  If that relatively minute 0.4% spread were misreported since the 90s, that produces output gap of about USD $2 trillion (roughly 10% of the GDP).   It's hard to guess the magnitude of the inaccuracies, though some estimates exist, but I'd be willing to bet that the government never *under* reports growth.  Why do inflated assets matter? Because they lead to unrealizable capital gains on the balance sheet that gets counted in GDP, potentially producing reporting inaccuracies.  I agree with you that infrastructure projects drive a lot of China's growth, but again, the other drivers notwithstanding, there is a material difference between 6.5% and 6.9%. I am - The economy is influenced by the debt and government manipulation in the short term, which is going to drive employment (or lack thereof).  In the slightly longer term, a financial collapse followed by an economic collapse and depression are going to mean very high unemployment for a very long time.    What we've got now is only bad compared to what we've been used to for the last few decades.  In a depression where government aid is unavailable because the government is the cause of it, things will be considerably worse. "While you have asked for general principles, I am going to seize onto a specific example you gave in order to illustrate the difficulties here: Argentina. Argentina's bonds are probably not safer than US treasuries. Argentina is presently in the business of seizing foreign oil businesses (Repsol YPF) while championing leftist causes. At the very least this indicates an elevated level of political risk: S&P, which affirmed Argentina's ratings five notches into junk territory at B, said policies such as those enacted since the country's October presidential election could also weaken Argentina's macroeconomic framework and external liquidity... ""Actions of this type continue to shorten the economic planning horizon in the country and contribute to Argentina's deteriorating economic and political links with the international community."" -- ""S&P Lowers Argentina Outlook To Negative"". The Wall Street Journal, 23 April 2012 You're not going to be able to capture that sort of a risk with raw budget numbers. It's hard enough to figure out creditworthiness for a business; for an entire nation it's even harder. That's why credit-rating firms, as faulty as they may be, employ dozens of people to try and figure this sort of thing out. Additionally, there is a currency risk associated with buying bonds denominated in foreign currencies. It doesn't matter much if $nation repays all its bonds if they have so much inflation that the repayment is worth half of what it used to be (nor is it much help if your own nation's currency rises in value while your investment's value is stable elsewhere). Ultimately the value of a bond is ""how much money am I actually going to get back?"" and while operating a budget surplus isn't a bad sign in and of itself, it's hardly the complete picture. A fair accounting of the relative creditworthiness of any two nations needs to unite two massive fields of study: Macroeconomics and Politics. It is possible that the right sort of degree in economics, risk management, or a similar field of study could prepare you to know exactly what sort of research is necessary to make a meaningful analysis. :) Now, if you just want some commentary on which bonds are safe to buy, ask a credit-rating agency -- for example, read Standard and Poor's sovereign ratings - or find a mutual fund which may invest in international bonds at its own discretion and have someone else make the decisions." "&gt;Staggering levels of national debt that is only growing due to continued budget deficits. As it stands now, the national debt stands at over 100% of annual GDP, and that figure is only growing as the deficit remains huge.  Debt as a percentage of GDP is a useless metric. Debt can be paid off over decades while GDP is at one point in time. Japan isn't too worried about their debt.   &gt;Governments from municipal to states in financial disarray.  It's been like this for centuries. It's a short term problem that eventually gets resolved with a stronger economy.   &gt;Crumbling infrastructure after decades of insufficient funding and maintenance throughout the country.  ""Crumbling"" gets thrown out a lot. Just because we don't build high speed trains that we cannot afford doesn't mean our infrastructure is crumbling. We have the best freight railroad network in the world, the best highway system in the world, and cities all over the country are heavily investing in mass transit.   &gt;A population grown completely accustomed to a resource-intensive, globalized lifestyle relative to that enjoyed by almost any other country on Earth.  So?   &gt;And finally, the combination of the game of economic dominoes unfolding in Europe and a slowing Chinese economy.  Again, Europe is a temporary problem. Greece, Spain, Italy, etc are all in hell right now but they are offset but the gains made by Germany and the Netherlands." Regarding the Summer of 2011 Crisis: There is NO reason that the United States cannot continue borrowing like it is just based on a particular ratio:  Debt to GDP. The Debt to GDP ratio right now is around 100%, or 1:1. This means the US GDP is around $14 Trillion and its debt is also around $14 trillion.  Other countries have higher debt:gdp ratios Japan - for instance - has a debt:gdp ratio of 220% Regarding a selloff of stocks, dollars and bonds: you have to realize that selling pressure on the dollar will make THE PRICE OF EVERYTHING increase. So commodities and stocks will skyrocket proportionally. The stockmarket can selloff faster than the dollar though. And both markets have circuit breakers that can attempt to curb quick selloffs. Effectiveness pending. Idk if equating fiscal policy to direct changes in debt is the greatest idea. Yes if you buy one more F-35 your debt will increase by $160 million. However it's more complicated when discussing decreased debt, as for the direct cause.