Debt to GDP as core metric is already looking bad in most countries but seems very misleading. For a household you would take all debt (liabilities) vs income. For a mortgage here is an example guideline for DTI (debt to income):
100% or higher DTI - these prospective borrowers represent a huge risk and do not show an ability to make regular mortgage payments. Almost all lenders will reject an application in this instance.
75% to 99% DTI - borrowers who are very high risk. A select few specialist lenders will be willing to look at the application and make a positive decision where other factors are given more weight, such as credit score and a clean credit history or substantial deposit.
50% to 74% DTI - high risk borrowers. Some specialist lenders are willing to accept applications at this level, but terms are less favourable and larger deposits are required.
40% to 49% DTI - moderate risk borrowers. Specialist lenders will want to see good credit history and may ask for larger deposits.
30% to 39% DTI - acceptable risk. Most specialist lenders will offer a mortgage at this level at standard terms.
20% to 29% DTI - good borrower. Almost all lenders are happy to approve mortgage applications at this level.
0% to 19% DTI - very low risk borrower. All lenders will consider an application
Now let’s look at US as a virtual household:
Gov income is not (yet) 100% of GDP! More like 17%. So 25.4 * 0.17 = 4.3T
Total liabilities are more like 100T, this is current and future outgoings the gov has committed to even though not all of it is funded - which doesn’t mean the liability magically goes away. Current low estimate for this is 100T.
So the debt to income ratio is about 23.2 or 2300%.
Buying gov bonds is like financing a mortgage for that household.
You know how this ends 🟠.
