It Took $4 In New Debt To Create $1 In GDP

Tyler Durden's picture

Bill Gross' letter discussing the credit deluge hitting the US came out at a convenient time: just as the Federal Reserve released its latest Flow of Funds report, which while most track to show the change in average household net worth - which is almost entirely a function of the stock market - we find it far more valuable for its nuanced information on the breakdown of US debt. And while it showed that in the fourth 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 $2 trillion to $92 trillion mostly as a result of a $1.5 increase in financial assets....

... we were more interest in the aggregate picture.

It wasn't pretty.

As a reminder, according to the latest BEA revision, nominal 2016 GDP was $18.86 trillion, an increase of $632 billion from 2015; 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 $66.1 trillion. This was an increase of $2.511 trillion in the past year. It means that in 2016, it "cost" $4 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 350% total credit/GDP, 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, and especially if Trump's fiscal plans call for trillions in new debt, the economy should get there, once again, very soon.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Jason T's picture

It's obama's and it went to food stamps and cell phones for the loafers.



Boris Alatovkrap's picture

You are problem with certain fashionable footwear?

Bastiat's picture

Boris!  I was afraid you'd been black-bagged for election hacking.  Good to see you back.

knukles's picture

So that means the Multiplier Effect is actually negative, not positive.
No shit, Sherlock.

Never let a fact get in the way of giving the public a good screwing

Logan 5's picture
Logan 5 (not verified) knukles Mar 9, 2017 3:20 PM


Devils Advocate's picture

Don't worry the growth just hasn't happened yet, it will come I promise! wink wink

GUS100CORRINA's picture

In an earlier post, I mentioned the fact the no one in authority cares about the growing DEBT problem as if it won't be a problem at some point in the near future.

This lack of concern should be a BIG RED FLAG!!!! Something is coming down and this will not be business as usual.

Over 2+Trillion dollars missing from Pentagon budget that are rumored to have been used for special black ops projects.

Very Strange!!

Paul Kersey's picture

So what does one of Trump's major Goldmanites plan to do about the growing debt? Grow it even larger, of course:

Mnuchin calls on Congress to raise debt limit Mnuchin calls on Congress to raise debt limit

Treasury Secretary Steven Mnuchin has called on Congress to raise the United States debt limit "at the first opportunity."

In a letter to congressional leaders dated Wednesday, Mnuchin said the Treasury will stop issuing certain state and local securities on March 15, when the most recent suspension of the debt limit expires. Mnuchin said the Treasury will likely start taking "extraordinary measures" the next day, when the U.S. will be at its statutory limit, to prevent default.

"As I said in my confirmation hearing, honoring the full faith and credit of our outstanding debt is a critical commitment. I encourage Congress to raise the debt limit at the first opportunity so that we can proceed with our joint priorities," Mnuchin wrote.

Boris Alatovkrap's picture

Only hacking for Boris is when walk by couch bound nephew and cannot breath for stench!

Ghost of PartysOver's picture

$4 to create $1 in GDP?

Now that is FaceBook Stupid.

jus_lite_reading's picture

In less than 3 years time, it will take $16 to make $1 in GDP.

Anyone think this will be sustainable? Get your Au, Ag, Pt and Pb......

I keep saying civil war is going to happen in Europe first in less than 5 years but I think we might see in the US in less than 3.

Wulfkind's picture

I remember about 5 years ago seeing a chart about how it was eventually going to be the case that more than 1 dollar in new debt would have to be created to get 1 dollar in GDP growth.

The projection was around the 2016 time frame.  It was projected to be 1 for 1

Just a little off at 4 to 1.    Winning

That's a recipe for MAGA  !!

ejmoosa's picture

Since they never plan to pay back the debt, they certainly think it was a worthwhile investment.

Boris Alatovkrap's picture

Whenever Boris is hear "Investment" and "government" in same discussion, very large bell is make sound in head.

ejmoosa's picture

Krugman and Company- they even feel broken windows are investments...

Boris Alatovkrap's picture

Well, if that is case, what about broken face of nobel lauriate economist? Consider how benefit is trickle from wage earn by triage staff throughout local economy! Grand investment opportunity!

ejmoosa's picture

Sounds like an economic plan I can finally support!

Erek's picture

That's the stuff that makes economies boom!

hotrod's picture

Almost 19 trillion GDP?  Bull Shit  Or things are getting better cause it used to $10 of debt to create $1 of GDP.  Keep artificially raising GDP with more ObamaCare prices and pretty soon it will be 1 to 1.

Boris Alatovkrap's picture

Ah,miracle of fictional reserve banking! Wonderful, is not?

English herbsman's picture

The awkward moment when people don't realise we are ALL slaves to the elite, regardless of who you are. 

Bryan's picture

I have an idea.  Janet, just sent me a couple billion - maybe even a trillion bucks - and I'll just go out and spend it like a drunken sailor.  I'll buy cars and boats and Walmart items I'll finance some buildings and roads and bridges and whatnot, all American companies and people.... problem solved.  Your current recipients of all the QE cash seem to be hoarding it.  I promise I'll spend it all.

Bastiat's picture

You're on the right track,  Fund the busted pensions, raise entitlement benefits, buy and forgive student loans if you want to get some M1 in motion.

Bryan's picture

Nah, no entitlements... just plain old consumption and animal spirits.  Get businesses creating products, increase demand, etc.

LawsofPhysics's picture

LOL!!  "demand"?  Demand for what?  Be specific.  There is already almost 8 billion people competing for all the resources and energy required for a higher standard of living?  Plenty of demand for real resources and energy.

Plastic crap from china and bullshit financial products, not so much.

TeethVillage88s's picture

I was just thinking along your lines a couple hours ago.

We could tighten up credit, tell people not to use personal credit cards so much, push down their credit limits...

Then work on getting debt out of the many categories, while we fix pension funds, fix the MERS Record before some huge collapse and govt claims our houses aren't ours.

Who missed out on ZIRP/LIRP?

- Towns, Cities, Counties, States... who have plenty of debt already, but keep raising taxes & cost of living, & Utility Fees
- Consumer
- Chronically Ill
- Fixed Income, Walking Wounded
- Small businesses, Small Factories, Small Construction
- Anyone without business write offs is probably screwed

Nobodys Home's picture

When it hits 10:1 it's all over.

hotrod's picture

It's been there before.  ObamaCare prices inflated the heck out of GDP.

LawsofPhysics's picture

Why?  Japan wants to know...

jus_lite_reading's picture

16:1. Read my post above. That's the point even the obese SJW's protest the central planners...

Ghost who Walks's picture

Thanks jus_lite_reading,

The trend is the concerning issue here........

The key theory postulated by Professor Joseph Trainter in his book "THE COLLAPSE OF COMPLEX CIVILISATIONS" is the marginal return on investment.

A society has a certain amount of capital it can deploy to deal with external and internal threats to the existing culture.

He believes that when you get to the point that it costs more to solve a problem than to ignore the problem, then things start to unwind as new problems pop up. Especially if there are no reserves or funding available to get a team together to deal with the new problem . However the problem is a problem because of its impact on the existing status quo.

So this is another way you get change......

I would like to see the real ratio and trend line, as I suspect that the American GDP figures have been exaggerated by the application of a too-low inflation rate.

John Williams from Shadow Stats makes a strong case that the goal-seeking behaviors of the BLS has lead to the mis-use of hedonics, seasonal adjustment factors and the famous Births-Deaths model of business formations, to create a set of numbers that at best is optimistic, and at worst is deliberately misleading as to the current situation. If Mr Williams is correct then you may see the effects you predict earlier than you expect.

The point is what is more important? To know when the SHTF of if the SHTF?

Many of the contributors on this site believe that the trend is negative and talk about the actions that they have taken to deal with TEOTWAWKI.

This is an indicator that a proportion of the American population are either "Chicken Littles" or well-informed. When we get to the point that the evidence is very strong that things really are headed south, then another large groupwill join the first group that believes things are trending badly and also adjust their behaviours.

The change in spending behaviours will trigger a depression, or worse.

I am sure that this has been clearly modelled in an economic model, and that the leaders responsible for maintaining the status quo are also aware that once the bulk of the population awakes as to the real situation, then the game changes and nothing that they WANT to do will prevent a depression.

I like Profesor Steve Keen's opinions as he is dismissive of the abilities of the current set of economists, as he belives that they do not understand money or how the real world works. He thinks they are using broken models to describe and predict the economic future.

As an earlier post pointed out, giving money to those that will spend it is one potential solution, and according to Professor Steve Keen this has been modelled to show it as a viable solution to reducing the effects of an economic downturn.

However, it is a major challenge to the current status quo and the beliefs sets of the elites who feel that they are running the show.

It may be that the people running the show have very accurate models that clearly predict the outcomes, and they have other priorities to the rest of us. Again, your point that we will get to a confrontation point between the population and TPTB is correct and will be expected by those running the show. The question then becomes how do we deal with the situation to prevent re-occurring collapses? From what I have read it seems that Centralised Systems are less crash proof, and the outcomes more severe than distributed systems.

So the solution to Making America Great Again might be reducing the power of the central authorities and letting the states run their own business to suit local tastes and problems. This is because if one state follows an economic model that is wrong it will suffer and provide an example to all the others. Success will be emulated and failure dissected, understood and avoided into the future.


TeethVillage88s's picture

Thanks I grabbed some screen shots off a Tainer Presenation maybe 4 years ago.

St. Augustines Laws.

ds's picture

YES to Prof Steve Keen. Bad news is that he will not be listened to by the "neo classical economists' who are more interested in holding on to their grips in governements , academia, etc. Economics is not open to debates and has lost its foundation to be even a serious social science. 

J bones's picture

Sounds exactly like what Mike Maloney says in hidden secrets of money.

Hohum's picture

As Maurice White once said, it's the way of the world.

GunnerySgtHartman's picture

Time for an economic reset - oh, and time to storm Congress & the Eccles Building with pitchforks.

4 wheel drift's picture

ah i finally understand the concept of...

government efficiency



LawsofPhysics's picture

Well, good luck with that. A few things in life are certain.  For example, death and taxes.  However, I can guarranty you that you will not get any taxes from a population of people that are broke...

hundreds of trillions in PAPER/DIGITAL claims....

All these claims have begun seeking out real resources/assets...

We Are The Priests's picture

Ah yes, the Law of Diminishing Returns.

Economic Mother Nature is an angry bitch just looking for something or someone to bitch slap.

Our advice?  Don't stand too close to the target.

Games Without Frontiers's picture

Now back out financial "products" aka paper wealth and just look at the "actually making real things" categories......

orangegeek's picture
It Took $4 In New Debt To Create $1 In GDP


thank da nigga and that fucking cunt yellen

prymythirdeye's picture

And the banksters win again.  Anyone who makes their living in finance can go fuck themselves.

Sick Underbelly's picture

I can't help but hear Maynard from TOOL screaming "Prying open my third eye!  Pry-ing o-pen my third eye!"

Probably not what you meant with your name.

prymythirdeye's picture

That is exactly what I meant with my name.  Bottoms up to you sir!

edit:  My picture is an Alex Grey piece.  He's done a lot with Tool

Consuelo's picture



- What: National debt discussion

- When: 1995

- Who: Michael Reagan talk show

- Amount: $4.8 Trillion

- Status: Critical






directaction's picture

That's some mighty fancy rubber check bouncing.

BigCumulusClouds's picture

Just goes to show: government spending is a losing proposition.