It Took $10 In New Debt To Create $1 Of Growth In The First Quarter

Tyler Durden's picture

When the Fed unexpectedly stopped reporting the data for Total Credit Market Instruments in September 2015, the most comprehensive series of total credit in the US economy, there were many screams of disappointment and frustration from US debt watchers. However, this was unnecessary, as all the Fed did was break up the series into its two constituent components: total debt (found here) and total loans (found here).

So today we had a chance to update the total US credit following the release of the Fed's Flow of Funds (Z.1) statement, which is usually parsed for its tracking of changes to household wealth. And while it showed that in  the first quarter the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $837 billion to $88 trillion mostly as a result of a change in real estate holdings, we were more interest in the aggregate picture.

It wasn't pretty.

As a reminder, according to the latest BEA revision, nominal Q1 GDP was $18.23 trillion, an increase of just $65 billion from the previous quarter or an annualized 0.7% rate, the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $64.1 trillion. This was an increase of $645 billion from the previos quarter. It means that in the first quarter, it "cost" $10 in new debt to generate just $1 in new economic growth!


And here are the two other key charts: the first, showing total credit (debt and loans) vs GDP growth since 1950. The trend is hardly anyone's friend, except for those who create the debt out of thin air to pocket the ever lower cash flows associated with it (and await the next inevitable bailout):


More importantly, on a leverage ratio basis, the US economy is now at a level of 352% total credit/GDP, the highest since Q1 2013, and a level which has been relatively flat since it peaked at 380% just before the crash. One way to read this chart perhaps is that the "carrying debt capacity" of the US economy is roughly 380% at which point something "unexpected" happens. At the current rate of surging credit relative to slowing GDP, the US economy should be there in the not too distant future.

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Tristan Ludlow's picture

Not a very good return on your money.  Only government could think this is good.


natronic's picture

Only gubberment could run a whore house and not make a profit!!

SubjectivObject's picture

Where'd the money go then?

Rhetorical question.

N0TaREALmerican's picture
N0TaREALmerican (not verified) SubjectivObject Jun 9, 2016 1:03 PM


My question is: why didn't they double the amount so we could have had 2 bucks of growth.


Hohum's picture

It's...the $64,000,000,000,000 question!

sixsigma cygnusatratus's picture

Every newly-printed dollar only has the effect of reducing the value of every existing dollar.  Zimbabwe, for one, has already won that race.  Venezuela is next.

FrankieGoesToHollywood's picture

And every dollar which is given away for free accelerates that depreciation.

WTFUD's picture

Gone are those days when you could expect a bang for you buck. Man overboard . . .

nibiru's picture

Do you see this MASSIVE DROP from 380% to 350%? It's the inflationary escape of debt - the method they employ. They don't need to even pay it but rather you print more - isn't that beautiful?


Perfect - now let's continue being a sheeple and be fleeced.

e_goldstein's picture

Magical Negro Economics (MNE)

N0TaREALmerican's picture
N0TaREALmerican (not verified) e_goldstein Jun 9, 2016 1:02 PM

Actually,  it's Dick "The Dick" Cheney Economics.

IndyPat's picture

You like ze Magic negro, no? He tickle ur pee pee, no?

Mind the GAAP's picture

I really wish I hadn't eaten lunch before reading that article.

rejected's picture

Just increase O-Care premiums even moar! ,,, say about $5000 per month with $25000 deductable. That'll up the GDP....

ANestIOS's picture

getouttaere, that doesn't add up, 9 bucks missing

Hohum's picture

Other 9 dollars to pay interest to the big banks.

ejmoosa's picture

That's about the same efficiency as government.  It takes 100 million to build a 10 million dollar bridge today.

Automatic Choke's picture

Tyler - ok, enough already, i'm tired of the play by play of corrupt politicians, i can get that on cnn (as if i wanted it).  i probably have company here.  can we discuss the markets?   anybody got any wisdom on the jump in natural gas?  trend or glitch?


IndyPat's picture

And the Juice be all like dancin' n shit. This is good news for Juice.

mvsjcl's picture

We had to dig a 10-foot hole in order to elevate us -9 feet.

Infield_Fly's picture
Infield_Fly (not verified) Jun 9, 2016 1:37 PM



That Obama - he's a fucking genius.  Just ask him.



BSHJ's picture

If you look at the second chart you see that GDP is steadily rising, which is great right? So then what does it matter how we got there, whatever .gov (or .fed) is doing, it is working and they need to do it more!! I feel more prosperous just having these thoughts!

oncemore's picture


No comments?

Sturm und Drang's picture

Well, with civil forfeitures on the rise, the velocity of money from the sidelines should help this clearly sustainable trend.

wcvarones's picture

We're going to need to re-define GDP again.

Hawkenschpitt's picture

We have "created" how much under the quantitative easing programs? $80-billion per month is hitting $1-trillion per year. On a $17-trillion economy, that is pushing a 6% pump, but our growth has been scarcely over 2%. For the duration of the quantitative easing, there is a missing 4% economic boost. Somehow this is supposed to be without cost. Ya, sure.

Stormtrooper's picture

Anyone else notice that the divergence began around 1971 when Tricky Dick sent us into fiat oblivion?