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Debt Deal Delusions: Debt to Gross Domestic Product Ratio

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" Reinhart and Rogoff picked the 90% figure almost arbitrarily. They chose, without explanation, to divide debt-to-GDP ratios into the following categories: under 30%, 30-60%, 60-90%, and over 90%. And it turns out that growth rates decline in all of these categories as the debt-to-GDP ratio increases, only somewhat more in the last category."  Robert Shiller, Delusions and Debt  July 21

So we've had a debt crisis based, in large part, on a study that reversed causality,  picked an arbitrary unit of time (one year) for the ratio used, and created arbitrary categories, including the magic 90% and above danger zone, where there were the differences in declining growth were not that remarkable.  The reversed cause and effect mistake is enough to throw the entire theory out.

But if Professor Shiller's erudite analysis doesn't satisfy you, here's one more reason to reject the debt ratio argument.  It excludes manipulation and bad judgment.

The study by Reinhart and Rogoff notes the following countries as having the worst Debt-to-GDP ratios.  Shiller pointed out that the measure isn't the cause of the crisis rather, the crisis causes the ratio.  In practical terms, fixing the ratio is not guaranteed to fix the underlying causes of the economic crisis.

A variation of the causality critique is obvious.   Iceland, Ireland, and Spain were subject to various manipulations by internal and international finance.  The governments of the UK and US were subject to and enablers of the same manipulations.  The variable that's missing is outside manipulation and government complicity in that manipulation.  Absent the machinations of Wall Street and the City of London, would any of these countries have the same Debt-to-GDP ratios?

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Those brave enough to watch on C-Span have endured the ranting and fulminations of a bunch of male hysterics.  So sure of themselves, so expert at everything, so willing to take the country down as low as it can go economically -- all for a set of cherished assumptions.  This is one of them.  We should thank Robert J. Shiller for calling it what is -- a delusion.

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It has been reported for weeks in the alternative ... by David Ruhlen on Wednesday, Aug 3, 2011 at 9:55:40 AM
Fabricated from fiction, fact-free, fantasies.&nbs... by Michael Collins on Wednesday, Aug 3, 2011 at 9:35:33 PM
which is distinct from socialism, Marxism and comm... by bogi666 on Thursday, Aug 4, 2011 at 1:54:50 AM
sociopathic-psychopathology........the super-congr... by Working-class UK Socialist on Friday, Aug 5, 2011 at 1:08:01 AM
Bonfires are mesmerizing. What is it about fire? ... by Ned Lud on Wednesday, Aug 3, 2011 at 10:01:27 AM
The spin masters fired up the might Whurlitzer dec... by Michael Collins on Wednesday, Aug 3, 2011 at 9:38:34 PM
Does nobody understand that the only two things th... by granddad on Wednesday, Aug 3, 2011 at 1:35:44 PM
Just two sentences - what on earth is he saying? ... by Working-class UK Socialist on Wednesday, Aug 3, 2011 at 9:15:01 PM
When your economy hits the skids, your debt tends ... by Michael Collins on Wednesday, Aug 3, 2011 at 9:42:46 PM
 I suspected that was the gist of it.  I... by Working-class UK Socialist on Thursday, Aug 4, 2011 at 4:24:36 PM
for political purposes. Using the accumulated debt... by bogi666 on Thursday, Aug 4, 2011 at 1:45:59 AM