> In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously
One of my missions-for-fun on HN is to figure out why anyone cares about Japan's debt:GDP ratio. The country is a net creditor [0]. The US is the worlds largest debtor by an order of magnitude in absolute terms, and up there with just outside the beyond-hopeless tier of debtors. Superficially the two countries seem to be incomparable. Japan's credit position is almost an anti-US on net, relative to GDP. Why would we look at a creditor to figure out how a debtor's default would work?
When you print the world's reserve currency, and currency can only be issued as debt, if the world economy grows faster than currency expansion, you'll have real goods/services deflation. It's a weird catch 22, the only way for the $ to remain the reserve currency is for it to continue being issued at a global growth rate, faster than a mature economy like the US can grow. International debts in $ can only be paid back in the same and that's part of the reason for rehypothecation, central bank swaps, and all sorts of other shenanigans. In turn that keeps US long rates artificially low.
The old adage holds true though, it's your problem when you owe the bank a little money. It's the banks problem, if you owe a lot of money. The same is true of inward investment into the US (or Russia or China). Who will end up owning that investment, if relations go south? The country where it exists not the investor, but debt is a negative investment. The Treasury can start issuing unsterilized currency (the trillion $ coin) and debase the currency any time there's a big enough issue, or simply not repay certain bonds. By the time that happens though, the international economy will already be a shambles. Markets end run this sort of stuff.
If it really happens quickly, owning lead (or uranium) will be more important than owning gold. Hopefully, it's gradual and we eek through another few decades of global growth before it does.
It was a footnote, to illustrate that even countries like Japan which are on the other end of spectrum are not immune to ratio affecting them , not a direct comparison
Perhaps I should have elaborated, this was not a technical presentation of the argument, just a picture everyone can understand.
One of my missions-for-fun on HN is to figure out why anyone cares about Japan's debt:GDP ratio. The country is a net creditor [0]. The US is the worlds largest debtor by an order of magnitude in absolute terms, and up there with just outside the beyond-hopeless tier of debtors. Superficially the two countries seem to be incomparable. Japan's credit position is almost an anti-US on net, relative to GDP. Why would we look at a creditor to figure out how a debtor's default would work?
[0] https://en.wikipedia.org/wiki/Net_international_investment_p...