Interactive Guide to Reducing Government Debt
Check out the Economist’s new Daily Chart: The maths behind the madness. The interactive graph allows you to pick two counties/areas and then input your own long-term assumptions to project and compare the likely path of debt out to 2020.
Key assumptions include real interest rate (r), GDP growth (g), primary budget balance (p), and inflation (i). In the government-debt dynamics, in any given period, the debt stock grows by the existing debt stock multiplied by (r-g), less the primary budget balance p. Inflation helps reduce the total debt stock over time, as the real value of debt decreased with inflation.
Too bad the chart does not include China, where local government debts have been skyrocketing in recent years.