Chart Of The "Keynesian Normal": America's Tragic Divergence

Tyler Durden's picture


There is a saying that debt can't buy growth. When it comes to the US, that saying is absolutely correct: only lots and lots of debt can "buy growth."

As the chart below shows, since officially leaving the gold standard in 1971, annual GDP growth has outpaced the growth of federal debt on just 11 occasions, and of these half were during the dot com boom of the late 1990s. Obviously this chart would look far worse if instead of just federal debt - which is merely a portion of total we used total credit market debt (which is some three time greater). But for illustrative purposes, merely Federal debt will suffice, because the parabolic "endphase" divergence between the two indexed lines - one showing GDP growth, the other debt growth - says more about the final outcome of this tragic Keynesian experiment than 1000 meandering, meaningless, trolling essays written by Nobel-prize winning economists ever could.

As Brent Johnson at Santiago Capital notes, "We are now supposed to believe that during the biggest credit crunch of the last century, the economy is going to start growing FASTER than debt & reduce this spread?"

But don't worry, even as America drowns in debt, we really owe it to ourselves, even if in a few years all of it will be held by the Federal Reserve.

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Thu, 05/23/2013 - 18:00 | 3593825 fonzannoon
fonzannoon's picture

"As Brent Johnson at Santiago Capital notes, "We are now supposed to believe that during the biggest credit crunch of the last century, the economy is going to start growing FASTER than debt & reduce this spread?" But don't worry, even as America drowns in debt, we really owe it to ourselves, even if in a few years all of it will be held by the Federal Reserve. Now tell that valet to hurry up and fetch my Beamer. I'm late for my tennis match"

Thu, 05/23/2013 - 18:09 | 3593840 SafelyGraze
SafelyGraze's picture

if you ignore the debt though, the us balance sheet is very much in the black.

-ken lay

Thu, 05/23/2013 - 18:20 | 3593870 BoNeSxxx
BoNeSxxx's picture

Let the fed have all the debt... then just walk away.  Each generation finds doing so more and more easy - and why not, they have had practice... Upside down home loans, 90 month auto loans, and student loans used for I-Crap and weed.  As the Lord Humongous said in Road Warrior, "Just walk away".

Stew in your own paper Benny Boy.

Thu, 05/23/2013 - 18:22 | 3593884 espirit
espirit's picture

About time to rewrite history to...

"Kenyensian Normal"

Thu, 05/23/2013 - 20:29 | 3594206 Manthong
Manthong's picture

You just wait..

That blue line will double in size..

Once that red line gets up over $20MMMM

Thu, 05/23/2013 - 18:34 | 3593921 azzhatter
azzhatter's picture

if you don't count our expenses, we're very profitable

Thu, 05/23/2013 - 18:00 | 3593826 Bastiat
Bastiat's picture



". . . in a few years all of it will be held by the Federal Reserve."

At which point we can cancel the debt and Fed with it.

Thu, 05/23/2013 - 18:11 | 3593846 PiltdownMan
PiltdownMan's picture

Bastiat: I have thought the same thing myself.

Thu, 05/23/2013 - 18:25 | 3593893 Bastiat
Bastiat's picture

Been chewing on that one for a while--just gaming it out.  Then one day Ron Paul actually mentioned cancelling Fed held debt, IIRC.

Thu, 05/23/2013 - 18:58 | 3593978 BoNeSxxx
BoNeSxxx's picture

Me too Bastiat... I can't find much of a downside either... take the BIS and the entire CB mechanism with it.

Same old noise about markets, liquidity, access to capital, blah, blah, blah... still not seeing any significant downside (especially when compared agaist the obvious benefits).

Thu, 05/23/2013 - 19:12 | 3594010 sablya
sablya's picture

... unless other bondholders become suspicious that the Treasury will default on their bonds as well.  One might take the position that the difference between defaulting on "yourself" and "defaulting in general" is a matter of semantics.  So, might argue, for instance Moody's - and they would be right because it would be a declaration of insolvency.


Thu, 05/23/2013 - 20:14 | 3594173 noless
noless's picture

If domestically held debt is canceled, then who buys the debt Issued after that?

because they need to keep printing, all it would do is make it weinbabwe style blatant in your face printing.. Instead of hidden through bond flipping.

Thu, 05/23/2013 - 21:57 | 3594399 orez65
orez65's picture

"If domestically held debt is canceled ..."

1. If privately owned Treasuries are "cancelled", it  is called STEALING FROM PRIVATE INDIVIDUALS AND COMPANIES. The private owner would lose that asset. It's like if you loaned someone money and they don't pay it back.

2. If Federal Reserve owned Treasuries are cancelled the Fed would lose that asset. The corresponding liability being the Federal Reserve Notes (dollars) that it created "out of thin air". It's balance sheet would then show that its liabilities exceed its assets. The Fed would then be bankrupt.

But what if you just don't give a shit that the Fed goes bankrupt.

3. Then the Fed balance sheet would show that it's bankrupt because it did not destroy the Federal Reserve Notes that it created to buy the Treasuries. Those Federal Reserve notes would then stay in the economy without being collaterized by debt on the US taxpayers.

The US Dollar would then become "toilet paper" because the Federal Reserve would then be printing pieces of paper (dollars) with nothing as collateral.

Foreigners, specially, and anyone holding dollars would then buy any and all hard assets available, voila hyperinflation.



Fri, 05/24/2013 - 02:48 | 3595096 Oracle of Kypseli
Oracle of Kypseli's picture


Thu, 05/23/2013 - 18:12 | 3593851 NotApplicable
NotApplicable's picture

Yeah, right. Let's see, they will own all of the US Treasury debt, and all of the money they created to buy it is a liability of the US Treasury.

I think that's known as a win-MFing-WIN!

Thu, 05/23/2013 - 18:42 | 3593949 markettime
markettime's picture

Only if we keep our guns. If we have no means to defend ourselves we will become slaves to the fed instead of canceling it. 

Thu, 05/23/2013 - 18:00 | 3593827 observer007
observer007's picture
IRS official Lois Lerner put on administrative leave

Lois Lerner, the director of the tax-exempt organizations division at the Internal Revenue Service, has been placed on administrative leave, a congressional source familiar with the move confirmed.

Thu, 05/23/2013 - 18:07 | 3593833 Dr. Engali
Dr. Engali's picture

McCain stuck his finger in the air saw an opportunity and called for her resignation knowing full well this was coming. He likes to pretend that he is relevant.

Thu, 05/23/2013 - 18:21 | 3593883 ersatzteil
ersatzteil's picture

I'll never forgive Vietnam for letting him out of prison.

Thu, 05/23/2013 - 18:36 | 3593929 espirit
espirit's picture

Perhaps DHS should treat him like other Veterans.

Thu, 05/23/2013 - 18:22 | 3593885 TheFourthStooge-ing
TheFourthStooge-ing's picture


McCain stuck his finger in the air

...and, with his tiny little tyrannosaurus arms, couldn't even reach his chin.

Thu, 05/23/2013 - 18:35 | 3593925 azzhatter
azzhatter's picture

Was it the same finger he diddles Lindsey Graham with?

Thu, 05/23/2013 - 19:20 | 3594029 TheFourthStooge-ing
TheFourthStooge-ing's picture

Funny you should mention that. His effort to reach his chin was an attempt to wipe away some stray drips of Lindsey.

BTW, I'd be surprised if Graham couldn't take both of McCain's arms with little or no effort.

Thu, 05/23/2013 - 18:08 | 3593837 Dr. Engali
Dr. Engali's picture

You're going to need a bigger chart.

Thu, 05/23/2013 - 18:15 | 3593860 NotApplicable
NotApplicable's picture

They'll likely switch to a logarithmic chart, but then somehow fail to update the labels on the Y-axis.

Thu, 05/23/2013 - 18:15 | 3593865 the Absurd
the Absurd's picture

I find it somewhat ridiculous that all these charts and indications of impending disaster are presented like it's some type of surprise that everything's going to collapse and most of us are going to die when that is pretty much what, "on a long enough timeline, the survival rate for everyone drops to zero," implies.

Thu, 05/23/2013 - 18:28 | 3593906 espirit
espirit's picture

Is your avatar a "pineapple head"?

Thu, 05/23/2013 - 18:33 | 3593917 GubbermintWorker
GubbermintWorker's picture

Appropriate, no?

Thu, 05/23/2013 - 18:36 | 3593932 the Absurd
the Absurd's picture

You don't like pineapples?

Fri, 05/24/2013 - 07:11 | 3595258 StychoKiller
StychoKiller's picture

Take some, and pass it around! :>D

Thu, 05/23/2013 - 18:33 | 3593920 the Absurd
the Absurd's picture

Yeah, smiling too.

Thu, 05/23/2013 - 21:52 | 3594413 orez65
orez65's picture

"... like it's some type of surprise that everything's going to collapse and most of us are going to die ..."

It is not going to be the end of the world, nor are we all going to die.

This shit has been happening for milleniums all over the world.

What's going to happen is that all those holding FIAT money are going to lose it.

Those holding hard assets will economically survive.

Thu, 05/23/2013 - 18:16 | 3593867 Dr. Engali
Dr. Engali's picture

Obama : domestic terrorism is fueled by the Internet.

He's trying to clear the road for CISPA

Thu, 05/23/2013 - 18:18 | 3593871 fonzannoon
fonzannoon's picture

What is CISPA and when does it shut down ZH?

Thu, 05/23/2013 - 18:25 | 3593889 espirit
espirit's picture

All your data are belong to us.

Thu, 05/23/2013 - 18:28 | 3593907 Dr. Engali
Dr. Engali's picture

It passed the house and Reid is sitting on it in the senate. He has to wait until his palm is greased to bring it to the floor.

Thu, 05/23/2013 - 18:19 | 3593874 B2u
B2u's picture

The debt is an "off-balance" sheet item which doesn't count. 

Thu, 05/23/2013 - 18:35 | 3593924 blindman
blindman's picture

The Construction & Destruction Of The World Trade Centers
box factory the mill

Thu, 05/23/2013 - 18:40 | 3593942 Hannibal
Hannibal's picture


Thu, 05/23/2013 - 18:51 | 3593968 q99x2
q99x2's picture

If I owe money to me then how am I ever going to collect it? That dudes a deadbeat.

Thu, 05/23/2013 - 19:21 | 3594031 are we there yet
are we there yet's picture

A better anology is if the Mafia borrowed money from itself and could not pay their debt and so had to beat themselves up until they could pay. This is where congress and the FED has put us.

Thu, 05/23/2013 - 19:12 | 3594013 100pcDredge
100pcDredge's picture

But don't worry, even as America drowns in debt, we really owe it to ourselves, even if in a few years all of it will be held by the Federal Reserve.

I don't get it... why? Why throw in the "But don't worry" part? You have to pay back yourself! Right? Else it would be cheating... kinda. On yourself. And, well... never mind.

Thu, 05/23/2013 - 19:52 | 3594123 lesamourai
lesamourai's picture

I wonder how that GDP graph would look if the bubbles in government spending and real estate were stripped out?

Thu, 05/23/2013 - 20:14 | 3594169 samsara
samsara's picture

And wouldn't you know it, it really started during the "Morning in America" era.

Good Morning America, Welcome to your future.

Thu, 05/23/2013 - 21:18 | 3594312 Guy Fawkes
Guy Fawkes's picture

Funny ... I dont recall the US being in a recession from 1997-2001. Real tough sell on that rewrite .. considering the NASDAQ was going verticle. Now if you want to talk anytime under a Bush Presidency then you might have something. 

Thu, 05/23/2013 - 21:28 | 3594335 dalkrin
dalkrin's picture

A host of Cheesepopes keeps reassuring me that all will end well.  Let it be so.  Let this status quo endure until the dawning of a new Cheesepopery.

Thu, 05/23/2013 - 22:10 | 3594473 miker
miker's picture

The other thing to consider is the relationship of all this debt with all the filthy rich doucebags (aka The Donald) flitting around this country while the average joe that works for a living is sucking wind.  Any relationship??

Fri, 05/24/2013 - 01:39 | 3595030 Bear
Bear's picture

If "we owe it to ourselves", let's just pay it to ourselves and get on with it ... Oh, GS is "ourselves" or "we", I'm just really confused.

Fri, 05/24/2013 - 05:13 | 3595180 Ungaro
Ungaro's picture

Imagine that the US .gov nationalizes the Fed tomorrow. It would be a new form of 3-card Monty: the .gov issues debt to fund itself, then buys it back from its favorite TBTFs in exchange for zero-coupon perpetual notes (currency). Then some sharp ex-GS Treasury official would discover that the .gov could save lots of ink, paper and TBTF commissions (and reduce the national debt) if they just issued FRNs and forget all about the bonds. They could continue to fund their TBTF buddies by raising the interest rate on excess reserves...

Fri, 05/24/2013 - 07:29 | 3595284 OpTwoMistic
OpTwoMistic's picture

If the print had been given to the US peasants there would have been growth and inflation.

Now we get crash.  The dollar is currently stronger killing all exports. That is real helpful.

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