I was taken a bit aback by Kevin Carmichael’s piece on Obama’s budget plans in today’s ROB. In what is more a news than an opinion piece onÂ concerns regarding fiscal sustainability in the US , he baldly states without attribution that
“Research and history suggests that a debt-to-GDP ratio of 60 per cent or higher is a prelude for default.”
Really? Who says that?
He appears to be referring to net public debt, which is currently 74% of GDP in the US and averages 62% in OECD as well as Euro area countries. (OECD projections for 2011.)Â Japan’s net public debt is 120% of GDP. Even virtuous Germany has a net public debt of 52% of GDP.
The IMF and the OECD have recently issued reports suggesting that it would be desirable to bring advanced country debt gradually down to the 60% of GDP level given that it is headed higher in the context of aging societies, but I am unaware of any mainstream view that 60% is “a prelude for default.”