Suplus/deficit cycle is correlated with eight year regime change

The surplus process is persistent and strongly procyclical, strongly correlated with the unemployment rate. (The picture is debt to GDP and surplus to GDP ratios, but the same present value identity holds with small modifications so for a blog post I won't add extra notation.)

Right here is the chart posted along with the comment.  Look at the gray bars since 1980. The generational deficit is correlated with the typical career length of a generation. To solve the puzzle one needs to know what the typical default amount is per generation, and that seems to be a third of the debt.

My rule of thump says that at equilibrium we will default on a third of government debt every 15 years.



But, like I say, my rule of thumb depends on the existence of six small state governors with IQs above room temperature.