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.