It's the debt, Stupid!

Genius Krugman has stated that the percentage calculated by dividing debt by GDP in the US can go to 100% without jeopardizing the economy in the form or excessive debt burden and bankruptcy. He cites other countries (source: CIA – Japan 170%; Sudan and Egypt 106% and Greece 90% among others) as the empirical source of his brilliant conclusion.

Krugman is wrong for many reasons, mostly the following:
1. What is included in debt? In the US debt exists at many different layers. The US debt is now over $11 trillion and rising (look left) at the fastest pace ever. There is more US contingent debt than ever in history and the new transparent administration has not cleaned the windows that show those numbers. What is the current US contingent debt? Also, there is debt all over the 50 states and municipalities and commitments to fund programs and pensions. Last there is consumer debt. Add it up and that 60% current percentage quoted by Krugman is vastly understated.
2. Any citation of debt without the specifics of debt service ability is fiction. How much will the burden of debt service be on this economy? Further, the US and its political subdivisions have used long term debt to fund current costs. This is a violation of fundamental financial values. It is just plain bad policy and lenders with any standards would not make loans for these purposes. Someday, someone will wake up.
3. Debt refinancing issues. What is the likelihood of the US’s ability to refinance its debt as it comes due? To answer this question it would be appropriate to look at the current experience with US mortgage backed securities which would suggest that lenders can disappear even with US government backing. Today, the FED is the principal buyer of US supported mortgage backed securities. Woe be unto those who can’t imagine this happening to US securities.
4. Shrinking GDP. Shrink the GDP and the denominator in Krugman's formula shrinks increasing the debt/GDP percentage. The debt numerator is rising quickly; not stabilizing or declining. Paul, better get that GDP denominator moving up. Oh yes, we’ll borrow and print money to do that. Is the Nobel Prize granted for practicing idiocy?

Simple question. The geniuses who led the US into this briar patch are alive and well. Why are they still in their jobs in congress and in bureaucracies and in the media, academia and business? They have suffered naught for their terrible stewardship of the economy. Their answer to the problem they created is massive spending, massive deficits and massive debt buildup. It is a certain path to insolvency.

The US is in big trouble and the geniuses who led us into this problem are still in charge. Unless and until these fools are removed and no longer directing wasteful spending programs the future is doubtful. Krugman is wrong and this little man will disappear just as his predecessors - Reich, Rubin and Greenspan. They will be joined by Geithner, Summers and Bernanke. They are not the solution; they are the problem. They will be to Obama as the neocons were to GWBush.