Bloomberg Surveillance · Monday, August 10, 2026
Jim Caron explained that higher nominal GDP is the primary mechanism for paying down deficits. He noted that while the fiscal deficit is high, around six percent of GDP, the debt-to-GDP ratio is around 120% and is likely to decrease with sustained nominal growth. Caron drew a parallel to the post-World War II era where a combination of yield curve control and high nominal GDP growth was used to reduce the deficit.
“So the idea is that if you have higher nominal growth, which we do, that's what pays down your deficit. Right, that is the number one thing that pays down your deficit.”
“Now, that's likely to come down as long as you have higher nominal growth. That's what brings that down the fastest.”
“That's what we did after World War two, right, we had yield curve control. We capped you know, ten year yields of two and a half percent, and we allowed nominal GDP to get above six and that's what paid down the deficit after World War two.”