Federal Debt as Percentage of GDP

The ratio tends to fall as interest rates increase

• Makes it costlier/harder for governments to go into debt
• Inflation reduces the real impact of previous debt

The ratio tends to rise as interest rates fall

• Makes it easier/cheaper for governments to issue debt

US Federal Debt to GDP Ratio History

• Fell from the 1960s to 1980s as interest rates increase
• Generally rose from 1980 to mid 1990s
• Dropped in mid 1990s to 2000 during tech bubble
• Rose significantly during the 2008 Financial crisis
• Continued to slowly creep up during the economic expansion post 2008 crisis

High Deb/GDP Drag on Growth

• High Debt/GDP ratios can reduce growth  - they impact investor expectation
• Investors expect higher taxes with high deb/gdp ratios and spend less
• This has been researched by Carmen Reinhart and Kenneth Rogoff
• they compiled debt, growth and default statistics from the 1400s till today
• a 90% Debt/GDP ratio and above is a threshold where no Debt does to spur growth, but instead hinders it
• Other research shows that  growth slows at a debt/GDP ratio of 60%