Point of Know Return

Today I found a message floating
In the sea from you to me
You wrote that when you could see it
You cried with fear, the point was near
--Kansas

The below chart, taken from this article, shows total US debt among select countries. Total debt is broken down into categories of government, non-financial business, households, and financial institutions.

In 2009, total US debt amounted to nearly 3x GDP. Since then, government debt has probably gone up relative to other categories as we increasingly socialize risk.

According to the author, the pink line at 260% represents the all time record for debt repayment, accomplished by England between 1815 and 1900. Can't substantiate the source, but the notion that there is a level of debt that constitutes a point of no return is certainly consistent with the recent work of Reinhart of Rogoff (2009).

The author observes that these debt numbers do not include entitlement liabilities (e.g., Medicare, Social Security). Were these liabilities factored in, then total liabilities to GDP shoots to 6-7x or higher.

References

Reinhart, C.M. & Rogoff, K.W. 2009. This time is different: Eight centuries of financial folly. Princeton, NJ: Princeton University Press.