An Economic Disaster?

The national debt-to-GDP ratio is the wrong measure (although it's close). Try this one instead (here's a related discussion with an especially relevant chart.)

I think that gold bullion is the last resort for a portfolio, preferably held in a foreign jurisdiction. If the stock market and bonds collapse, the gold will at least hold some value and may go up a lot. I wouldn't have a lot, but I would (and do) have some.

In the Raleigh, NC area, where housing prices actually increased slightly from June '07 to June '08, things don't look good.
There are presently about 300 homes on the market in Wake County alone priced at $1 million or more. There are 700+ in the $350k to $400k price range; 900+ in the $400k to $500k price range; and over 1,400 in the $500k to $1 million price range.
Housing inventory has increased by 50% over the past two years.
I'm waiting for the bottom to fall out even in this seemingly bright spot of the U.S. housing market.

I think that what is misleading about debt/income is that it does not take into account the future obligations under Social Security and Medicare. If we ignore those, then we're fine. But if we include those, we're in huge trouble.

Arnold: You're obviously correct with respect to the various debt-to-income ratios. They are, at best, a snapshot in time, one whose picture quality could be improved by factoring in the present value of the nation's long term financial obligations. From an accounting perspective, it's disappointing that the government doesn't do this already.

While I can't speak for how Medicare will go about meeting its future obligations, I can for Social Security. Under current law, Social Security will revert back to a pay-as-you-go system once the OASDI trust fund surplus is exhausted (around 2041-2, according to the program's actuaries' intermediate assumptions), with all money collected from Social Security taxes in any given year afterward being fully distributed to program recipients.

The actuaries also forecast that people receiving Social Security benefits can expect to see their checks reduced by 20-25% when the trust fund is depleted at that time.

This isn't a problem from our current crop of politicians' perspective, as this is the only obligation that's been promised to be paid. There's no gap to be made up in a technical sense, even though each and every recipient of Social Security benefits will notice it.

Perhaps someone could clarify if Medicare will operate differently, or will simply be effectively capped and rationed as Social Security benefits will be.

The debt to gdp ratio isn't as important as the interest to gdp ratio and what the volitility of that may be. What do we expect to have to pay on that debt?

I had thought dependence on short-term funding was exactly the distinction between solvency and liquidity.

I think dividing DTI by population is the stupidest thing I've read this morning, but the day is still young.

As a holder of inflation-indexed US debt, I'd rather we inflate than default in a crisis, but as a citizen, I'd far rather we default. The premium we would presumably have to pay afterward to borrow money should be the same in either case, and the economy will do better with a stable currency than without one.

Supposing nominal GDP grows 5% a year over the next decade or so, we can currently borrow 1% of GDP and pay back less than 1% of GDP (because nominal interest rates are lower than 5%). The short-term deficit worries me more because it suggests continuing deficits than anything else; if I thought we could stop on a dime, I'd be perfectly willing to run deficits until it became less lucrative. Well, that and that international investors are starting to show some signs of worrying about our credit; the liquidity thing does worry me a little bit.

dWj: The "stupidest thing you've read this morning," and yet, you can't say why?... Please elaborate if you have a point.