As America’s debt has ballooned and its debt/GDP ratio has risen, many critics have pointed to the work of Carmen Reinhart and Kenneth Rogoff as cause for alarm. The two professors’ research had found that, historically, when economies cross the 90% debt/GDP ratio threshold, growth is significantly negatively impacted. But University of Massachusetts Amherst PhD candidate Thomas Herndon recently discovered flaws in Reinhart and Rogoff’s research. Here he tells Bloomberg about the errors; when fixed, the new data showed that there was no 90% threshold after which growth falls dramatically. Herndon says that, while the previous research had indicated that high debt is always a negative, “we found that’s not true”. In fact, he said the negative correlation between debt and growth has actually gotten weaker in more recent years, as countries with debt/GDP ratios above 90% have collectively grown faster than those in the 60% to 90% range.
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