This page has been archived and commenting is disabled.
Debt Is Failing as a Driver of Economic Growth
The US is heading towards a debt crisis.
Today, the US’s Debt to GDP ratio stands at over 105% (debt of $16.7 trillion on a GDP of $15.68 trillion). The only other time we’ve had more debt relative to our GDP was during WWII when the Debt to GDP ratio hit 112%:
Debt is not inherently evil. Debt that doesn’t create growth is.
In the 1960s every new $1 in debt bought nearly $1 in GDP growth. In the 70s it began to fall as the debt climbed. By the time we hit the ‘80s and ‘90s, each new $1 in debt bought only $0.30-$0.50 in GDP growth.
And today, each new $1 in debt buys only $0.10 in GDP growth at best.
Put another way, the growth of the last three decades, but especially of the last 5-10 years, has been driven by a greater and greater amount of debt. As you can see, after the Crisis began in 2007, the US moved into the point of debt saturation at which each new $1 in debt generates no additional growth.
This is why the Fed has been so concerned about interest rates. With a debt load of this size, every 1% rise in the US’s debt payments means another $100 billion in debt payments.
Unfortunately for the Fed, rates will eventually rise. It is guaranteed. As you can see in the below chart, rates have fallen almost nonstop since the early ‘80s. This is not sustainable. At some point rates will rise again. I cannot state expressly when, but that point is coming sooner rather than later.
With that in mind, investors should take steps today to shield their wealth from the impact of this.
If you have not taken steps to prepare this, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:
http://phoenixcapitalmarketing.com/special-reports.html
Best Regards
Phoenix Capital Research
- advertisements -
Maybe this winter that string the FED is trying to push will freeze and it might move. Damn with global warming opps climate change, no freezing that string.
duh, captain obvious..
Debt to GDP is almost meaningless. Debt to federal revenue means everything. If you had GDP of $60T, and federal revenue at $3T won't help. You can't apply the GDP to pay off debt. Only revenue.
yep. see below. a "tax regime" is not a simple thing to create...something all those "free market people" need to take into account when investing into a "political economy." the current tax code was created in 1986...when employers were now forced by law to become the tax collector for the Government. This turned out to be a very effective tax regime...and still is even today. In other words Government doesn't need to be told where it gets its revenues from...and no, they need not be "working people" at all actually. if they are that's a good thing...a "money multiplier effect"...but an asset need only be "capital" to throw off huge amounts of free cash flow (for example a hydro electric utility. once in place that thing can throw off "free money" for a thousand years.) same is true for oil wells actually. one interesting side bar to the "natural gas boom" is that these things are drilled so deep they're actually getting as much geo-thermal energy as they are nat gas...and actually have trouble separating the two. here's a company just trying to do geothermal "fracking" as a stand alone venture: http://m.technologyreview.com/news/520361/fracking-for-geothermal-heat-i.... in theory these drillers could convert that into electricity and use the natural gas "aspect" as a "something on the side." now you're talking truly cheap electricity. in Europe they have a huge value added tax...you have to pay the Government for engaging in said activity...that ain't true in the USA. All of the "efficiencies" that technology creates goes right to the bottom line and then to the extent pricing power is maintained to into Federal revenues. In my opinion that's one reason why revenues are soaring...fear of inflation=a massive capital spending boom=huge amounts of product spilling out into the market. take a good hard look at that chart...the first half are MASSIVE deflations, not inflation. when last i checked the industrial revolution didn't just "stop." http://m.technologyreview.com/demo/521956/printing-batteries/ Starting in World War I Government got REALLY big. We haven't had big government in the USA since 1973. not for lack of trying of course...
I am not sure why this would surprise anyone. Only productive and useful assets with a shelf life comprise wealth. The wealth these assets represent is independent of currency.
Debt creates currency, but detracts from wealth because it must be paid back with interest, generally as a result of productive work... which when used to pay interest becomes nonproductive work ... because it creates no wealth.
Meteor and Comet Attack, TPTB will NOT warn you, they will lie even after the fact
http://nukeprofessional.blogspot.com/2013/03/meteor-coincidence-methinks...
SOS SOS SOS SOS SOS SOS SOS SOS SOS SOS
Inmate of open-air prison run by lunatics and populated almost entirely by zombies is desperately seeking a pen-pal ... because God gave Eve to Adam, and Aldous Huxley gave someone to Winston Smith.
For mutual support in these trying times, am seeking fellow non-zombie intelligent, open-minded, and well-informed inmate for discussing topics of mutual interest, such as:
Both actual and notional nuclear accidents, and nuclear technology of all sorts. Is nuclear safety always an oxymoron?;
Same as it ever was. “Kill the man, kill the problem,” Joe Stalin. Change is a process, not an event. Chicken Little has always been wrong, so why not now?
Same as it ever was. Bankers v. The People is nothing new. In 1833 Andrew Jackson took on and succeeded in killing the Second Bank of the United States. In 1963 JFK took on the Fed and was killed. The bankers will do “whatever it takes” to keep it going as long as possible;
Same as it ever was. See Historical Revisionism of WW1 and WW2 as a battle of valiant truth-telling historians versus the plush OSS/CIA myth-telling “historians” as waged notably by the largely, and very sadly, forgotten Harry Elmer Barnes, 1889–1968. Many brave souls such as he have seen history through the lens of The Truth is First Casualty of War … and lived to tell the tale, or at least published before their death;
Same as it ever was. See John Kenneth Galbraith 1975 Money: Whence it Came, Where it Went about the Capitalist Crisis as predicted by Karl Marx. Four decades later and still going?;
Same as it ever was. 1984, Alice in Wonderland, and The Wizard of Oz as works of history – and Newspeak, shunning, straw man, murder, etc. as (largely) effective social controls;
zerohedge.com as island of sanity, albeit sorely lacking in collegiality; and
weaknesses in the prison system which might allow its escape and/or subversion.
SOS SOS SOS SOS SOS SOS SOS SOS SOS SOS
*loud applause*
With exception to the JFK conspiracy...well done!
BTW: You might look into the molten salt Thorium Reactor as a safer alternative to traditional nuclear reactors...
The debt to GDP ratio is much worse than it looks because the denominator (GDP) is pure garbage. A much better ratio is debt to government income or revenue (taxes, tarriffs, etc.). It looks horribly worse today than even WWII. Currently that ratio is about 6.5. Worse yet is the ratio: (debt+liabilities)/(revenues-mandated spending). Oops. That one went negative. We're doomed.
The FED is applying monetary policy to stimulate the economy...they hope to force so much money into the bank vaults that it will spur investment and cause trickle-down growth. And it does not work, will not work, as we are in a LIQUIDITY TRAP.
Had the Fed -or our horrible President Obama- embraced Keynesian principles, then they would have spent those trillions on:
1) JOBS/INFRASTRUCTURE projects (Where the hell is that green energy grid? Where are the million-windmills?)
2) expended Social Security by lowereing the age of retirement to open up jobs for the unemployed
3) funded a single payer health care system,
4) implemented targeted Tariffs to force green jobs back to the US,
5) taxed the crap out of job-outsourcers,
6) increased the monimum wage to $15 per hour
ETC.
NO! This crappy President and his bankersters are all neoClassical economists (NOT Keynesians!) and no matter how failed their policies are for the middleclass and shared prosperity, their supporters on Wall Street are all that matters to them. Every tick up of the Dow Jones signals more out sourced American jobs and reduced consumer demand for products but increased profits for their short sighted cronies.
Who will stop this madness??
Yes. Wealth comes from value adding work, not debt creation or moving money from one pockect to another.
Real economic growth requires real inputs, not fake inputs like debt and fiat and promises. It takes more timber, more iron, more copper, more aluminum, more oil, more coal, more water, etc. When more is not possible any more, then by default and by definition we are left with less. But that's not the business model and expectation many grew up with and were biased and predisposed to in their way of looking at things. The disconnect between perception and reality is of real concern as those things have a way of eventually syncing up. And it's reality that is always the last one in the drivers seat.
I would take time to refute this article but it is time for my 1PM massage, followed by sauna and pedicure.- Solyndra CEO
Well, the feds have already threw out any crazy ideas like cutting back on the record-setting regulations. We all know those regulations are job creators for the federal workforce. If more debt isn't doing the job maybe we'll start cutting more checks to the jobless to see if they can stir up some economic activity.
Phoenix
"Debt is not inherently evil. Debt that doesn’t create growth is. "
I call bullshit on this mantra. The "as long as we have growth, everything will be OK" mantra. The last time I looked at a high school maths book growth was defined as the percentage increase on the total from the previous accounting period. In other words it works on the same principal as compound interest. The graph of that looks very much like an exponential graph to me.
Here, let me help you out with an understanding of what exponential actually means:
http://www.youtube.com/watch?v=umFnrvcS6AQ
Now can you explain why "getting back to growth" is going to be all so perfect?
Fuck you and your Fractional Reserve blinkers.
In economic speak;
The diminishing margional productivity of debt, which inflates currency supply, which in turn causes devalued currency cost/push inflation of real assets and products. Except physical gold or silver! Wonder why? Hmmmmm...
gee, who woulda thunk it?