(FORTUNE Magazine) – The Democrats' main economic argument against George Bush is that his boss presided over a doubling of the national debt. The argument has been effective; it taps into the vague fear that terrible consequences will ensue if deficits continue. Tim Congdon, in The Debt Threat: The Dangers of High Real Interest Rates for the World Economy (Basil Blackwell, $24.95), is as worried as anyone. The calamities of which he warns, like those in the Democrats' speeches, aren't happening. But his case is erudite, and well worth listening to as voters ponder which candidate is likelier to be a prudent fiscal manager. Congdon's argument is complex and requires unpacking. He defines the government's ''primary fiscal balance'' as its non-interest expenditures minus its revenues. Congdon points out that if the government runs a primary balance, then its debt will increase each year by the amount of interest it pays. Such growth of debt causes no serious problem, he explains, if GNP grows at the same or a greater rate. If not, however, then the ratio of government debt to GNP increases. That's simple arithmetic, and it is exactly what happened in the U.S. in every fiscal year from 1981 to 1987. The consequences, Congdon argues, should be grave. New investment will dry up as more savings are diverted to covering the deficit. The government might purposely engineer high inflation to reduce the real value of the debt. But Congdon's pessimism is probably unjustified. In fiscal 1987, for example, largely due to the Gramm-Rudman-Hollings Act, the U.S. federal deficit fell by a record $71 billion as federal spending adjusted for inflation declined for the first time in 14 years. As a result, the ratio of debt to GNP increased by 3.4% -- still too high, but well below the 9.3% average increase from 1981 to 1986. If, as seems likely, the fiscal 1988 deficit turns out to be about $152 billion, and if GNP grows in the fourth quarter of fiscal 1988 as much as in the first three quarters, the ratio of debt to GNP would decrease by a little under 1%, the first decrease since Reagan took office. Bottom line: With current policies on taxes and spending, the debt-to-GNP ratio is stabilizing. Moderate tinkering less extreme than required by Gramm-Rudman would cause the ratio to continue declining. Suddenly Congdon's scare story on government debt seems a lot less scary. Congdon, who is chief economist for Shearson Lehman Hutton in London, believes that the debt threat is pervasive, menacing the Third World as well as developed countries. When interest rates exceed the growth of the borrower's income from exports, as they have for several years among Latin American debtors, the borrower's debt becomes harder and harder to repay. Congdon reports, for example, that between 1982, the year the Mexican government announced that it could not service its foreign debt, and 1986, Mexico's debt-to-export ratio rose from 2.99 to a walloping 4.20. Nevertheless, contrary to Congdon's assertions, the problem appears to be improving. According to economists at the Federal Reserve Bank of San Francisco, debt owed to U.S. banks by troubled developing countries fell from $94 billion in 1983 to $77 billion in 1987. CONGDON IS fundamentally off-base when he discusses private U.S. debt. Yes, it has been exploding. But Congdon neglects the news about private assets. In the eight years that ended in the spring of 1986, while real household debt rose by $680 billion, real household assets increased by $3.6 trillion. So household net worth rose by almost $3 trillion. The October 19 crash has not changed that: Stock prices, adjusted for inflation, are about where they were two years ago. The debt problem for the U.S. government and for Latin America is diminishing. For individual Americans in aggregate there isn't any debt problem. Things won't necessarily stay that way; the debt threat, as Congdon describes it, is real. So don't relax -- but don't panic either.