OK here goes. I am trying to explain it to you guys in a form you may understand since you are not getting it. Yes even you Qtiger the mighty economics student




"GDP is calculated on a yearly basis whereas debt is cumulative. So you can have a decrease of debt relative to GDP, yes, but it does not mean that the overall debt has actually decreased".

First of all, no one said that this decrease of debt relative to GDP means that the debt has gone down. But what is does mean is that the economy as a whole can service the debt more effectively when this percentage is lower. Think about it in personal terms: your own debt to income ratio (D/I). Here's an example: say you owe 1,000 in loans against 20,000 in yearly income. Your D/I ration is 5% (1,000/20,000). If you take a new job making 40,000 a year. Your debt does not decrease, but your D/I ratio is now 2.5% (1,000/40,000). Which situation would you prefer? Let's play with the numbers some more. You're making 40,000/yr, so you figure you can take on more debt. So you buy a 500 stereo on your Mastercard. Your D/I is now 3.75% (1,500/40,000). Your D/I went up AND your debt went up. But your ability to service the new, higher debt is still greater than in the first example (1,000 debt with 20,000 income). In fact, even though you have MORE debt, you are a more attractive credit risk with the lower D/I ratio. Don't believe me? Go ask your banker. Now, just substitute National Debt for the D and GDP for the I, and you're there.

To your argument that this ratio is unsound as a measurement because debt is cumulative but income is not, that is literally correct, but functionally absurd. When you're asked how much you make each year, does your answer change by pay period? Do you include the phrase "...so far." when you answer? I didn't think so. How else would you compare across a timeline? And you are also incorrect in stating that "These numbers are not real numbers. They are not indexed. They are nominal." The numbers presented in virtually ALL government charts dealing with finanacial matters are in present dollar values, not in contemporary dollar figures. In fact, that is EXACTLY why the GDP/National debt ratio is important; it's used to compare budget strength across timelines.

Just a little something we like to call facts; perhaps you've heard of them?