On The Imminent US Debt To GDP Parity

Tyler Durden's picture

One of the most recurring and troubling topics on Zero Hedge is the imminent US Debt to GDP parity: even as the US economy is starting to roll over from a temporary sugar high into a double dip, the hangover effect of $2.1 trillion in debt incurred since March 2009 will linger for a long, long time. Total US debt is currently just under $13.1 trillion, and is rising at a rate of about $150-200 billion per month, meaning that US GDP of about $14.4 trillion will soon hit parity with the Federal debt, likely in under one year. Luckily, this critical topic is starting to get far more greater prominence: Bloomberg's chart of the day focuses precisely on this issue. Garfield Reynolds and Wes Goodman note: "President Barack Obama is poised to
increase the U.S. debt to a level that exceeds the value of the
nation’s annual economic output,
a step toward what Bill Gross
called a “debt super cycle." We hope the president will finally address this untenable collision course during one of his daily TV appearances in the upcoming weeks, instead of ruminating on last week's terrific(ally bad) NFP report.

From Bloomberg:

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.

“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”

Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”

Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.

“The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?”

The answer to the latter is of course no, yet once a majority of the investing public realizes that this is the correct response, the Ponzi is over, and the days of the Wall Street-DC kleptocracy are numbered. However, just like a thought experiment which puts every rat in the world in the same corner with the knowledge that the only outcome is extinction leads to some amusing visuals, look for the approaching final Ponzi battle to be fierce. After all, at stake is nearly one quadrillion in imaginary shadow debt, also known to those on Wall Street as "wealth."