What A Difference A Decade Makes

Even as the popular press if focused on the 5 year anniversary of Lehman, we decided to go back double that period, and take a look at what happened to the developed world economy in the past decade, starting with 2003. What we found was interesting.

  • Total G7 consolidated debt was $80 trillion in 2003. In the next decade it has risen by $62.3 trillion to $142 trillion at the end of 2012. This is a stunning 80% increase in the total stock of world debt in just one decade.
  • Total G7 consolidated GDP was $22 trillion in 2003. Over the past ten years, GDP has risen by $9.4 trillion, or by 42%, even as total debt increased at double that rate.
  • Until 2003, every $3.6 dollars in debt generated $1 dollar in GDP growth.
  • In the past ten years, it took $6.7 dollars of debt to create $1 dollar of economic "growth."
  • Furthermore, as we showed yesterday, in just the past five years, or since the Lehman failure, this ratio has exploded, and some $18 dollars of debt were required for every $1 dollar of GDP, with only $1 trillion in nominal GDP having been created among the G7 countries in the past five years matched by $18 trillion in debt.
  • Total G7 debt/GDP at the end of 2012 was 450%.

To summarize: economists may debate whether Reinhart and Rogoff were wrong about 90% sovereign debt/GDP representing a cutoff threshold to a country's growth. What however is clear, is that when consolidated debt/GDP is five times that, growth, well, is a pleasant fiction.