First of all, forget about GDP. It can be manipulated. How exactly is it measured, and don't tell me it doesn't include estimates. It is unfair. To do a measurement of debt to GDP implies that the government is entitled to some portion of my income. And it has a bias towards government spending. Since reducing spending reduces GDP, everyone freaks out.
Instead use TCMDO. This is all the debt in the economy, or, looking at it from the opposite perspective, it is all of the assets in the economy that pay interest. We want this number to grow about 3% per year. This would allow interest to be paid on existing debt and also include a little bit of growth and inflation. If this number is less than say, 3%, then there is a valid reason for Keynesian deficit spending of up to this amount.
So, looking backwards, how does this compare?
Date TCMDO Growth Targ.(3%) Deficit Sugg. Defic.
--------- ----- ------ --------- ------- ----------
9/30/2007 49482
9/30/2008 52985 3503 1500 459 0
9/30/2009 53352 367 1600 1413 2646
9/30/2010 53058 -294 1600 1293 3187
9/30/2011 54212 1154 1600 1300 1746
9/30/2012 55668 1456 1600 1090 1234
9/30/2013 58100 2432 1700 1100 368
9/30/2014 61000 2900 1700 1150 0
So, I don't know if this makes any sense or has any validity at all, but the Keynesian philosophy was that during a recession you run up deficits to make up for the lag in demand and during normal years you balance the budget or run a surplus. Without deficit spending, the economy would have been shrinking for the last 3 years. But now that things are returning to almost-normal, there is no valid reason to continue to run huge deficits.
Anyways, this theory explains why the huge deficits of the last 4 years haven't been inflationary, because they are counteracting the deflating private debt. But relatively soon, maybe as early as next year, inflation will start to reappear, along with rising interest rates.
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