Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

Interest-Rates

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
http://www.my2centsonline.com

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 www.suttonfinance.net

Andy Sutton Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Brian
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
debt

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