All Else Equal: Making Better Decisions Rerun: Ep47 “Is the US National Debt Sustainable?” with Mohamed El-Erian
Jun 4, 2025
In this conversation with Mohamed El-Erian, President of Queens College at Cambridge and chief economic advisor at Allianz, the issues surrounding U.S. national debt are dissected. They explore the alarming current debt of $34 trillion and its historical context. El-Erian critiques traditional debt metrics, advocating for a broader view of fiscal sustainability. The discussion also dives into the impact of demographics and technology on economic growth, addressing both challenges and opportunities for the future. A fresh perspective on inflation trends rounds out the insightful dialogue.
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Debt-to-GDP Ratio Limitations
- The conventional debt-to-GDP ratio is flawed because it compares a stock (debt) to a flow (GDP).
- Alternative measures using stock-to-stock ratios like debt-to-assets may provide more stability and insight.
Interest Expense as Debt Indicator
- Interest payments relative to GDP have remained fairly flat despite rising national debt.
- This suggests the cost of servicing debt might be a better indicator of debt sustainability than debt-to-GDP alone.
Japan's Debt Paradox Explained
- Japan's extremely high debt-to-GDP ratio coexists with very low interest rates, which reduces the actual debt burden.
- The low interest rates reflect deeper systemic and demographic factors influencing debt sustainability.