Should the economic growth rate be faster than the average interest rate or faster than the debt growth rate? Recently, we have seen many discussions that as long as the economic growth rate can exceed the average interest rate of treasury bond, the old debt can be diluted. One point that is ignored here is that the primary deficit will increase every year. Last year, Besent explicitly stated that "the key is that the economic growth rate should be faster than the debt growth rate. If we change the growth trajectory of the country and the economy, we can stabilize the finances and resolve debt through growth. 1. The core logic behind economic growth being faster than debt growth is that: The average interest rate determines the interest snowball of old bonds; The primary deficit determines how much additional new debt needs to be added each year; Both jointly determine the growth rate of debt stock; Finally, compare the growth rate of existing debt with the nominal GDP growth rate. 2. Do an arithmetic problem, Assuming initial state: GDP=100, government debt=100, debt ratio=100%; Assuming a nominal GDP growth of 5% and an average debt interest rate of 3.5%. Two scenarios 1) No primary deficit One year later: GDP grew to 105, and debt increased to 103.5 due to interest rates. The debt ratio has become: 103.5/105=98.6% The debt ratio has decreased from 100% to 98.6%. At this point, a GDP growth rate of 5% higher than the average interest rate of 3.5% is indeed enough to dilute old debt. 2) There is still a primary deficit of 2.6% of GDP At that time, the primary deficit was about 105 * 2.6%=2.73 One year later, the debt became 100+3.5+2.73=106.23 The debt ratio has become: 106.23/105=101.2%; The result is: Nominal GDP growth rate of 5%; The average debt interest rate is 3.5%; Although the economic growth rate is higher than the average debt interest rate, the debt ratio has still risen from 100% to 101.2%. The reason is that the old debt was diluted by about 1.4 percentage points, but the newly added primary deficit increased by about 2.6 percentage points, with the latter exceeding the former. So the core is that GDP growth exceeds debt growth, not just the average debt interest rate. 3. Last year, a viewpoint was proposed about the fiscal expansion 2.0 era, which discussed several characteristics of the fiscal dominant era: 1) Finance is deeply involved in the industrial economy. Trump recently promoted the Great Beauty Act, the AI National Action Plan, and the Stabilizing Currency Act, so as to build a financial, industrial and economic policy with one body and two wings http://(x.com)/qinbafrank/sta. Recently, the US Treasury Department has attempted to use policy subsidies to exchange equity in various chip companies, which can also be seen as the government's deep involvement in the industrial economy. 2) Stimulating economic growth through fiscal means will inevitably further increase the scale of debt, making debt the biggest constraint in the era of fiscal expansion. Under this constraint, the big government will pursue two things: One is to make every effort to obtain more financial and tax revenue. From this perspective, tariffs, chip export taxes, immigration gold cards, etc. are all aimed at obtaining more financial and tax revenue in order to reduce the deficit gap; Secondly, we will spare no effort to promote lower interest rates, which will help reduce interest payment costs and enhance export competitiveness. (But looking back, this was interrupted by this year's Iran War) 3) Under the constraint of debt, bond defenders occasionally come forward to warn the government, causing market shocks and fluctuations. Of course, the market will look to see if it can really drive the economy higher and if the economic growth rate can outrun the deficit growth rate. If it is, people will believe this logic; if not, they will vote with their feet. (The problem now is that the economic growth rate still hasn't outperformed the debt growth rate)