It would be nice to pinpoint a date when our
fiscal policy is slated to pass from reckless and
irresponsible to crippling and irreparable.
But there is no magic threshold. It depends
on the era and doubtless other factors, in-
cluding the attitudes of the big creditors.
turing had external debt of less than 40 per-
cent of GNP, and more than half of countries
experiencing debt crises had debt levels below
60 percent of GNP. Thus, 60 percent might be
viewed as a rough threshold.
millions of soldiers from the federal payroll
and slashing spending for war materials cre-
ated fiscal surpluses. Moreover, the fiscal re-
trenchment had a relatively modest impact
on aggregate demand because the end of war-
time rationing led to an explosion of private
spending on houses, cars and the like. Even so,
there was a recession in 1946, which was
probably precipitated by the sudden cut in
government will be spending 23 percent
more than it takes in before counting interest.