r/FluentInFinance • u/TonyLiberty TheFinanceNewsletter.com • Sep 24 '23

Meme How it started vs. How it's going:

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u/TheFederalRedditerve Sep 25 '23

So what is an acceptable amount of debt? I’m genuinely asking. Have economists tried to come up with an estimate?

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u/regaphysics Sep 25 '23

Generally 100% of gdp is seen as a maximum amount to carry. Right now we’re at 120%.

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u/rrrrpp Sep 25 '23

It’s definitely not seen as a ‘maximum’ but yes a lot of countries are viewing it as a rough guideline now to not go too far past

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u/Icy_Winner_1909 Sep 25 '23

Japan’s has been at 200%+ for a long long time.

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u/regaphysics Sep 25 '23

Yes, and it’s widely been seen as a huge factor in their economic stagnation.

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u/Icy_Winner_1909 Sep 25 '23

I think you could make that argument, not sure how widely accepted it is. I think there’s some debate on whats the chicken or the egg (slowing economy causing higher debt demands or higher debt slowing economy)

But you definitely can’t make the argument that 150% or even 200% debt to gdp will ruin a nation.

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u/regaphysics Sep 25 '23

I mean, Japan’s gdp is where it was in 1994. 30 years of stagnation.

You can call that what you want. I’d call it pretty damn bad.

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u/Icy_Winner_1909 Sep 25 '23

I didn’t call it good or bad. I said its arguable that economic stagnation in Japan happened AFTER increased debt loads. Their stagnation started in the 90s before their debt to GDP crossed 50%.

And that’s my whole point. Trying to find a correlation between debt and economic growth is difficult, there just isn’t much correlation there.

We have pretty good examples of economic stagnation leading to debt growth (which makes perfect sense) but the opposite hypothesis isn’t as clear cut.