Paul Ryan: America’s Greatest Debt Forecaster

Republican Vice-presidential candidate Paul Ryan is set to debate Vice-President Joe Biden on Thursday night. While I am not sure if he will exactly talk about, I am sure he will mention the national debt. In his “Path to Prosperity” budget, Ryan has an amazing chart that shows what our debt would be if we continued in our current path compared to what the debt would be if we adopted his plan. Here’s the famous chart. It shows debt skyrocketing to nearly 900% of GDP in 2080!













Wow, Paul Ryan was able to project debt all the way to 2080, which is nearly 70 years away! He must be an amazing debt projectionist/forecaster.

OK, enough of the sarcasm. I’m sorry to break this Paul Ryan, but this chart is ridiculous in many ways.

First off, it ignores what national debt is. If the US Federal Government owes debt, someone must OWN it. Guess which 2 sectors own the national debt? The foreign and private sector.

The foreign sector owns US debt mainly because of trade balances. When a country like China holds nearly half of the foreign holdings, there is a reason behind it. They run a trade surplus with the US, and because of that, they have all these US dollars lying around. They can either go out and use it to buy resources, or they can put it in the safest asset out there, US bonds. This post clearly explains this process.

This leaves the private sector. Basic accounting identity tells us that the national debt is (net) private savings. And as I’ve blogged about in the past, to reduce the national debt is to reduce net private savings. Insufficient net private savings  usually lead to a recession (see how a drop is usually followed by a recession?).

Anyway, the point here isn’t to debunk Paul Ryan’s chart and why it makes no economic sense. My point is to show how absurd it is to project debt 70 years into the future.

First off, to project future liabilities is to put it frankly, dumb. I have the future liabilities of paying for food, school, healthcare, car insurance, mortgage costs, etc. I do not have all the money right now, nor can I project how much money I will definitely have for these future liabilities. Does this mean I am on an unsustainable path? Heck no. (And besides, the US’s budget is not like a household’s!)

Secondly, it is insanely HARD to project debt in the near future, let alone 70 years into it! Think its easy? Here’s a Debt/GDP chart since ~1940 (about 70 years back). Try drawing the path for the last 70 years. Given that you might even slightly know the estimated path of the chart, it’ll still be hard to draw it to close proximation – and you’re even using historical facts to help you! Now imagine not even knowing that, it is nearly impossible.













To conclude, projecting debt is dumb, impossible, fear-mongering and a useless political game. Stick to figuring out a way to get us growing again.



The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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