debt is cumulative, netting new draw-downs against old payables
GDP is a flow, of annual goods and services through the system oiled by the debt
suppose one's income is 100 per annum, and one's debt level is 100, against one's asset of 200
in the following year, suppose one's asset grew by whatever means to 500 (200 new acquisition and 100 capital gains + the original 200),
and one's debt went to 200 total (with the incremental 100 going towards the purchase of 200 of new assets), but one's income ONLY goes to 120 (100 original active income plus 20 on low return on asset of 500), now ... drum roll ..., even as income grew by 20%
one's debt:income went from 100:100 to 200:120, ala so what?!
we must instead balance flow against flow and balance against balance
china debt is in the vast majority domestic debt, and if we were to compare interest income vs interest expense, it would be essentially 1:1
this idyllic state is untrue of many nations, and especially with large foreign debt encumbered nations
for example, team Japan can support a lot more debt irrespective of what its debt to GDP is, as long as we are talking about domestic savers lending to domestic entities
the interesting number also includes the amount of new / incremental debt and share of GDP necessary to pay net (interest income less interest expense) interest, flow against flow
this interest flow against flow comparison works to the detriment of societies with large foreign / external debt balance
and even so, must take into consideration of external credit income on earlier generation accumulated FDI debt flow, etc etc |
