The chart below shows that US national debt as a percentage of its GDP is at an all time high excluding the one during WW-II. While I'm not as well informed in economics as most of the people on this forum, I know that a national debt to GDP ratio of more than 100% means that the country is strongly headed in a direction where it cannot pay back its own debt. I have two questions.

  1. Why is such a high US national debt, expressed as a percentage of its GDP, not resulting in another great depression?

  2. What is a good mathematical measure(s) (if it is not national debt to GDP ratio) which will provide all the information needed to gauge the chances of US entering into a great depression/bad recession?

I am dying to know the answers to the above and I would greatly appreciate it if you can answer them for me.

US National Debt as Percentage Of GDP

  • $\begingroup$ 1 and 2 are wildly different questions and too broad $\endgroup$ – Brennan Apr 23 '20 at 9:09
  • $\begingroup$ @Brennan I did not know that. I thought they are closely related. However, I am more interested in knowing the answer to #2. $\endgroup$ – TryingHardToBecomeAGoodPrSlvr Apr 23 '20 at 9:42

I would just add to the +1 answer of @BrianRomanchuk that in past a good measure of whats the chance of country, especially USA, entering into recession was inversion of the yield curve which could correctly predict most of the US recession. However, as mentioned in the previous point obviously there is no indicator that can predict black swan events such as the pandemic for example.

  • $\begingroup$ I had read in the news once when the yield curve inversion did take place and it did create a lot of noise in the media. I would appreciate it if you can share any links or more information (specifically a math formula) which is used to generate the yield curve. $\endgroup$ – TryingHardToBecomeAGoodPrSlvr Apr 23 '20 at 11:40
  • $\begingroup$ @TryingHardToBecomeAGoodPrSlvr yield curve itself is not generated through formula. A yield curve is simply a plot of yield of a bond against the maturity of a bond. Just collect data on yields for different bonds and also data on maturity of the same bonds and make a graph where you put yield in \% on y axis and maturity on x axis $\endgroup$ – 1muflon1 Apr 23 '20 at 11:45

You answered question (1) with your own chart. The United States had a “high” debt-to-GDP ratio in World War II - and there was no subsequent depression. (There was a sharp recession as a result of demobilisation, but that was short-lived.)

For a country that borrows in its own currency, there is no obvious reason how a high debt-to-GDP creates recession risk.

There is no easy answer to (2). We are currently headed into the greatest economic contraction since the Great Depression, and the cause was a pandemic, which would not show up in a standard mathematical economic model.

  • $\begingroup$ Thanks for the answer. Your comment "for a country that borrows in its own currency, there is no obvious reason how a high debt-to-GDP creates recession risk" is interesting. I will research more on this. It would have been nice if there was some formula to ball park how well the economy is doing as far as question #2 is concerned. I take it from your comments that it may not be as simple as writing down a formula to gauge the health of the economy. $\endgroup$ – TryingHardToBecomeAGoodPrSlvr Apr 23 '20 at 11:36

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