the average interest rate on the federal debt was about 8 percent. The growth rate of nominal GDP was about 4.5 percent. The ratio of federal debt to GDP was approaching 75 percent. That meant that in a given year, the government was spending eight percent of 75 percent of GDP, which is 6 percent of GDP, just for interest on the debt.
So, simply cutting back spending on programs to equal revenue would leave a deficit of six percent of GDP. With GDP rising by only 4.5 percent, the debt/GDP ratio would rise. How could the government prevent this ratio from rising?
You might think that the answer was to have the deficit equal ―only 4.5 percent of GDP. But remember that the interest rate on this new addition to the debt would be eight percent, which means that the debt/GDP ratio would still rise. The only way to keep the debt/GDP ratio from rising, it turns out, was to get the deficit down to 2.625 percent of GDP
The Appendix shows the arithmetic - has anyone done this for the UK in 2010?