Debt drag on economy

June 9, 2010

As noted by Reuters, the Treasury reported to Congress last Friday that the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year — a nine percent jump in just five years.

The increased debt has a real, negative, link to economic and jobs growth, according to University of Maryland Professor Carmen Reinhart. In recent testimony to the Administration’s bi-partisan Fiscal Commission, Reinhart said that debt topping 90 percent of GDP could slow economic growth; and current debt’s drag on the economy is likely costing one percent of GDP.

With that in mind, consider a report released by White House economists, Christina Romer and Jared Bernstein last year. The report found that a one percent increase in GDP corresponds to an additional one million jobs. So it would follow that for every one percent of GDP growth not occurring because of our debt, Americans are short one million jobs.

Bankrupting America has been focused on this issue and educating the public about the unsustainable trajectory of federal spending (see budget failure video and Greece video).

The answer is clear:  to have a job-creating economy, we must get government spending under control, and we must start now.

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