Free Republic
Browse · Search
Topics · Post Article

Skip to comments.

Lacy Hunt On Our Economic Future (America Is Heading Toward The Debt 'Bang' Point)
Advisor Perspectives ^ | 11-6-2012 | Robert Huebscher

Posted on 11/06/2012 9:00:08 AM PST by blam

Lacy Hunt On Our Economic Future

By Robert Huebscher
November 6, 2012

Depending on your political leanings, you’re likely to align yourself with one of two views of the economy. Either you believe our debt is the greatest crisis we face and deficit reduction should be a national priority, or you advocate increased government spending – and the additional debt that comes with it – to stimulate growth.

This debate is the central conflict that, if we can settle it, will shape our economic future, and finding a middle ground seems all but impossible. But such a compromise could be the key to finding policies both sides are willing to enact that can revive our economy.

Last week I spoke with Lacy Hunt, an unequivocal member of the deficit-reduction camp. Hunt defended – as persuasively as few others can – the need to address our fiscal imbalances. But equally respected economists are advocating for the other extreme, and he shares some common ground with them.

Hunt is an internationally respected economist and the executive vice president of Hoisington Investment Management, a Texas-based fixed-income management firm.

I’ll look why this issue is so pivotal and examine the arguments put forth by both sides of the debate. I’ll also highlight those points where there is a consensus – and possible seeds of a compromise.

The bang point and its dissenters

Our ability to incur more debt has limits, and much of the debate centers on determining where that limit may fall.

In our conversation, Hunt said we’ve already surpassed the point beyond which debt constrains economic growth. He cited a number of econometric studies, the most prominent of those being two papers by Carmen Reinhart and Ken Rogoff, Debt and Growth Revisited and Growth in a Time of Debt. Using data from 44 countries over the past two centuries, those studies showed that once a country’s debt-to-GDP ratio exceeds 90%, economic growth slows by about 1% per year. The 90% threshold has been widely cited as a danger zone for the US, and Hunt agrees about that figure’s significance.

The debt-to-GDP ratio for the US is just over 100%, according to OECD data, Hunt said.

At some point, the cost of servicing a country’s debt becomes intolerable. Credit markets calcify and the “bang” point (a term Reinhart and Rogoff coined) is reached; default is the only option. The bang point goes by other names – the fiscal limit, the Keynesian endgame, and the Cochrane condition – but, whatever you call it, it’s a point of indebtedness from which a country cannot escape.

Nobody knows when a country will hit its bang point, but considerable research has examined the path leading up to it.


TOPICS: News/Current Events
KEYWORDS: economy; finance; investing; recession

1 posted on 11/06/2012 9:00:18 AM PST by blam
[ Post Reply | Private Reply | View Replies]

To: blam
“We Are Surrounded By A Nation Of People Who Will Not Step Out Of Their Perceived Reality”

"There is no recovery coming. It is mathematically impossible to pay the debt that we have."

2 posted on 11/06/2012 9:05:08 AM PST by blam
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

Anyone with a biblical worldview should realize that this may be exeactly what the Lord intends. No, we were never a “Christian Country” under a covenant with God as ancient Israel was. But it’s also true, as the Psalmist said, that “righteousness exalts a nation.” This country was once exalted. It founded by people with a concept of God’s morality and will. Now we’re a country that institutionalizes child sacrifice, homosexuality, and injustice. His patience is not infinite. We can vote and speak up, but He is giving us exactly the leaders He wants, for His pupose. And that might be to bring down America, or it might be to make it less self-reliant and urge it to repent. We’ll see.

3 posted on 11/06/2012 9:11:56 AM PST by mikeus_maximus
[ Post Reply | Private Reply | To 1 | View Replies]

To: mikeus_maximus

Even an atheist should agree with what you said. Without some kind of moral compass, this country would never have won it’s independence. And where did they find that moral compass? From their deep belief in Divine Providence. Had they all been atheists, they would have felt they were on their own and they would have been crushed.

4 posted on 11/06/2012 9:21:04 AM PST by Terry Mross (To former friends and relatives. Don't ever contact me if you still support obama.)
[ Post Reply | Private Reply | To 3 | View Replies]

To: blam

a 43trillion lawsuit was filed by ny state against the banksters...most people don’t know about it because the media wont talk about it.....
eric holder is one of the defdants

5 posted on 11/06/2012 10:10:48 AM PST by freedommom
[ Post Reply | Private Reply | To 1 | View Replies]

To: freedommom
$43 Trillion Lawsuit- Here's The Details

For those of you interested in reading the knitty gritty details of the $43 trillion dollar lawsuit that I reported on yesterday HERE, you can read the hundreds and hundreds of pages of details of the court case at this link:

6 posted on 11/06/2012 10:17:40 AM PST by blam
[ Post Reply | Private Reply | To 5 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 is powered by software copyright 2000-2008 John Robinson