Goldman Sachs urge “new thinking on fiscal sustainability”
(I didn’t make that up)
- Many investors and policymakers are accustomed to thinking about fiscal sustainability in terms of the debt-to-GDP ratio, which will soon rise to the highest level in US history.
- In a recent study, Jason Furman and Lawrence Summers argue that a better measure of the debt burden is real interest expense as a share of GDP, which captures the cost of servicing the debt, adjusting for inflation. That measure is currently at a more historically normal level.
Although its fun to have a giggle at GS and their defence of the level of debt that they cite (bolded above) its becoming more accepted, especially amongst those doing the spending. Not just in the US either.
And, we ain’t here to fight with trends, right?
- Debt-servicing costs are low for now
- even the further increases in yields that our interest rate strategists forecast would leave debt-servicing costs well within the normal historical range