Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Debt as a Percentage of GDP Means No Growth for 50 Years

Interest-Rates / US Debt Aug 15, 2009 - 12:51 PM GMT

By: Andy_Sutton


Best Financial Markets Analysis ArticleApparently, a bazooka wasn’t enough. Last summer, that is what then Secy. of the Treasury Henry Paulson asked for when he made his case for sweeping financial powers. Instead, Congress gave him a nuke, and apparently that wasn’t enough either. Making the jump from completely absurd to the absolutely ridiculous, Timothy Geithner became the latest in a long line of Treasury Chiefs to run to Congress to ask for an increase in the nation’s debt ceiling.

The fact that he is asking for the increase should not be a surprise to anyone given the massive deficits already racked up over the past 18 months. What would be laughable if it weren’t so serious, however, were the comments made in his request letter to Congress.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations,"

How exactly does digging your hole even deeper inspire confidence? How does borrowing nearly 50 cents of every dollar you spend inspire confidence? How can anyone with two bits of common sense to rub together take this as anything less than an overt devaluation of the Dollar?

Yet his request was taken in a ‘business as usual’ manner by the media. Of course, this could be due to the fact that in our age of borrow and spend, these requests are becoming more and more commonplace. Perhaps this is one of the reasons people are so annoyed these days?

Debt as a percentage of GDP

This is one of the ways that the overall debts of one nation can be compared to those of another. In 2009, US public debt will be approximately 90% of GDP. It will quickly approach and surpass 100% of GDP in the near future. The chart below, sourced from FY 1020 historical budget tables on pp. 127-128, outlines in dramatic detail the accumulation of debt.

But the chart, unfortunately, only tells a very small portion of the story. First of all, there are some rather interesting assumptions being made here:

1) The chart deals in gross GDP, which is actually better for the discussion since we don’t have to worry about the deflator (GDP Price Index) clouding the initial discussion.

2) The chart assumes that 2009 GDP will be $14,233.96 billion. Given that 2008 GDP was $14,441.40 billion, this constitutes a total drop in GDP of $207.44 billion or 1.44%. This seems a bit shallow considering that to date gross GDP is already 1.38% below that of Q4 2008. That puts the annual pace of the contraction at 2.76%.

3) 2014 estimates place a national public debt of $18,350 billion at 99.9 percent of GDP. This implies a GDP of $18,368.4 billion. This assumes an immediate return to 5% GDP growth per year for each of the 5 years estimated.

Let’s say for example that the rate of ‘recovery’ is more realistic at 2.5% (a rather charitable assumption given the current state of affairs). Suddenly by 2014, the public debt is a whopping 113% of GDP instead of the 99.9% assumed. If we take it a step further and set the GDP growth to 1%/year, which is probably rather close to a best-case scenario, then the $18,350 billion of public debt in 2014 becomes 127% of GDP.

So the big question is where did the assumption of a return to 5% growth come from? Let us take a look at a popular, but discontinued series – M3. Discontinued, if you remember, to save the taxpayers money.

If you do a little smoothing on the data, you will find that M3 generally rose at a rate of very close to 5% per annum. From a monetarist’s perspective, THIS is the real rate of inflation, not what is displayed in the CPI, the GDP price index or other hedonically adjusted numbers.

I think that most people are able to understand the implications of discounting annual GDP growth by 5% every single year. Just to make the point, it is included below:

If you perform the same smoothing on this data, amazingly, you’ll come up with almost the same 5% as above.

What this means is that since 1959, we have had almost no growth in real GDP over the period, but have gone into debt nearly eleven and a half trillion dollars to do it.

Now many folks will nitpick about the fact that M3 growth should not be used to adjust GDP, but if you’re going to understand that inflation is an increase in the money supply, then you’d better discount your GDP by the growth in the money supply, not by some politically driven price index, which at best only measures one of the symptoms of actual inflation.

Given the fact that we have such a dismal record of turning our borrowed dollars into anything productive, it would make sense to prohibit the government from borrowing any more money on the behalf of the people. Surely Secy. Geithner is aware of this awful record.

But it gets even better.

"Congress has never failed to raise the debt limit when necessary,"

I would contend that in never failing to increase the debt ceiling that Congress has done exactly that - failed.

By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit

Andy Sutton Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


16 Aug 09, 18:29
The GDP, taxes, and the deficit

It is sad, I am 31 years old and so poor I could not tell the difference between before the housing crash and now. I feel stupid about this but until last year I thought whats the big deal about income tax, you get it all back at the end of the year. I didn't know, or know anyone, who made enough money to have to pay at the end of the year. All the full time jobs I have had I was still eligablr for food stamps.

People say 9-10 dollars and hours OK( I made 4.25 my first job, and 8 most others), but 40 hours at 9 or 10 an hour is 13-14,000 a year. It is not a livable wage and I cannot get a loan or grant for college for some reason, So anyway. I give up. I am not going to break my back for 123.00 a week after child support when the big banks CEO make a 100 a minute. 41.9 million

20 Nov 09, 10:18

These presented figures are a digrace to the free capitalistic world. in spite of all the power and muscles show to a less developing countries, is this the end, I am sure. your economic power are build on slavary and brutality

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules