The danger in McCain’s budget plans lies in the Debt-to-GDP ratio. As shown in an earlier post, his budget plans, by 2017, will result in a Debt that exceeds 60% of National GDP, compared to our current average of just over 40%.
By definition a higher Debt-to GDP ratio results in greater default risk; since most investors are risk averse, meaning they don’t like high risk in their investments, higher interest rates will be required and as a result will accelerate our deficit spending, or set off high inflation.
