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In 2002, the debt increased by 5.5 percent and GDP by 1.3 percent. The corresponding figures for 2003 were 6.2 percent and 1.4 percent; for 2004, 5.7 percent and 3.4 percent; for 2005, 3.7 percent and 2.6 percent; for 2006, 3.4 percent and 2.9 percent; for 2007, 3.6 percent and 2.8 percent; for 2008, 5.0 percent and 2.0 percent; and for 2009, 5.5 percent and 2.6 percent. Since then of course the gap has widened, but that is because of the economic crisis. We would feel great if we were back in the Bush economy! Yet in every year of Bush’s Presidency, the deficit grew faster than GDP. That may be the “new normal.”

The status of the dollar as the international reserve currency, and the mercantilist policies of countries like China and Germany, will enable us to finance our growing deficit, and thus postpone the day of reckoning, for some time. But at some point the wheels may start coming off the chassis.

Still, life is full of surprises. The prospects for the United States looked grim in the 1970s and bright for Japan. Then Reagan was elected and the sky cleared here, and then the Japanese housing and banking bubbles burst and Japan entered the long period of economic stagnation in which it still finds itself. Maybe we’ll get lucky again.

Read the whole thing here.


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