USA has reached debt saturation - chart
- Thread starter W4rl0ck
- Start date
The chart makes its point but it is exaggerated and over simplified. This chart was included at the beginning of our long M1 thread discussion about currency and debt.
To be fair about talking about debt over time you should express the level of debt as a percent of gross domestic product. The practice in the "Chart of the Century" is divide GDP by the change in the nominal value of accumulated debt. I think the point that debt is exploding presently and that new debt may not help is made either way...I would prefer it without exageration.
By usine aggregate debt from the Z1 report the graph makes no disticntion between which debt is growing...individual, business, state and municipal govt or federal...This is discussed in the narrative but the aggregation makes the chart less usefull than it could be if it focused only on Fed or combined Gov't debt and then contrasted with another chart of individual or business debt or combined private debt.
When you consider the saturation of debt and pretend that your metric is a measure of 'productivity' you need to describe what was acquired with the debt and you need to consider whether the assets secured by debt have lasting or future value. I think if the graph seperated private debt from government debt you would see a different asset aquisition picture and different understanding of the productivity of debt.
Debt is really only a problem if its cost is higher than the income derived from its application. The private sector understands the discipline of this understanding of debt. Debt productivity is predicate to obtaining and maintaining debt in the private economy. If you ran a business and actually sought to borrow money in order meet your payroll obligations you would simply be increasing your expenses and doing nothing to increase your revenue. It would not be long before no one would lend you money and you would default. If on the other hand you used the debt to build a new production facility in a new location with more favorable cost of labor on a per unit basis and you were thereby able through favorable pricing to increase your production and improved gross margins, you would be able to maintain and pay off your debt rapidly and there would be no problem.
In our present crises the private sector is reducing its debt in the aggregate through paying it off or causing it to be written off by default. At the same time the private sector is reduced its demand for new debt for purposes other than reducing the cost of maintaining old debt by refinancing at lower rates.
In contrast the Federal government has increased its demand for debt dramatically and used that debt to fund its own operations, to expand entitlements that redistribute income but don't create income, and to subsidize states which use the Federal debt to maintain operations. Stated differently, the FEd is borrowing money to meet its payroll and other operational 'expenses' at the same time that its income is collapsing.
During 2009 Federal Income, Revenues, collapsed to the lowest level since 1950. Revenue as expressed in terms of GDP has been consitent at between 19% and 20% of GDP. The Revenue of for 2009 was 14.9% of GDP; a dramatic sudden 25% collapse in revenue received. During the period of this revenue collapse the Federal governmetn increased its spending as a percent of GDP from a long term average of around 20% of GDP to about 25% of GDP. That was last year...before health care and another stimulus package. So, during 2009 the business of government dramatically increased its debt to fund the gap produced by a 25% drop in gross revenues while it increased its overhead by 20%! Vertually none of the money was used to acquire or invest in any assets that will produce future income. Quite to the contrary the borrowed money was used to prevent any expense recuctions in government operations and in its distribution to the states it required an ongoing committment to maintain spending levels.
I suggest that if you made accurate graphs of what was really going on with debt, seperating private from public, it would be even more alarming...Imagine that for the past 50 years the graph the revenue and government spending were tracking roughly from the bottom left to the upper right and during any decade the gap between the two lines narrowed a bit, sometime touched, then gapped away..but the two lines trended in the same direction..then in 2009 you see the spending line shoot dramatically up and the revenue line dropps dramatically down. Your graph of a tube snake all of a sudden turns into an alligator. It can't go on that way for very long.
To be fair about talking about debt over time you should express the level of debt as a percent of gross domestic product. The practice in the "Chart of the Century" is divide GDP by the change in the nominal value of accumulated debt. I think the point that debt is exploding presently and that new debt may not help is made either way...I would prefer it without exageration.
By usine aggregate debt from the Z1 report the graph makes no disticntion between which debt is growing...individual, business, state and municipal govt or federal...This is discussed in the narrative but the aggregation makes the chart less usefull than it could be if it focused only on Fed or combined Gov't debt and then contrasted with another chart of individual or business debt or combined private debt.
When you consider the saturation of debt and pretend that your metric is a measure of 'productivity' you need to describe what was acquired with the debt and you need to consider whether the assets secured by debt have lasting or future value. I think if the graph seperated private debt from government debt you would see a different asset aquisition picture and different understanding of the productivity of debt.
Debt is really only a problem if its cost is higher than the income derived from its application. The private sector understands the discipline of this understanding of debt. Debt productivity is predicate to obtaining and maintaining debt in the private economy. If you ran a business and actually sought to borrow money in order meet your payroll obligations you would simply be increasing your expenses and doing nothing to increase your revenue. It would not be long before no one would lend you money and you would default. If on the other hand you used the debt to build a new production facility in a new location with more favorable cost of labor on a per unit basis and you were thereby able through favorable pricing to increase your production and improved gross margins, you would be able to maintain and pay off your debt rapidly and there would be no problem.
In our present crises the private sector is reducing its debt in the aggregate through paying it off or causing it to be written off by default. At the same time the private sector is reduced its demand for new debt for purposes other than reducing the cost of maintaining old debt by refinancing at lower rates.
In contrast the Federal government has increased its demand for debt dramatically and used that debt to fund its own operations, to expand entitlements that redistribute income but don't create income, and to subsidize states which use the Federal debt to maintain operations. Stated differently, the FEd is borrowing money to meet its payroll and other operational 'expenses' at the same time that its income is collapsing.
During 2009 Federal Income, Revenues, collapsed to the lowest level since 1950. Revenue as expressed in terms of GDP has been consitent at between 19% and 20% of GDP. The Revenue of for 2009 was 14.9% of GDP; a dramatic sudden 25% collapse in revenue received. During the period of this revenue collapse the Federal governmetn increased its spending as a percent of GDP from a long term average of around 20% of GDP to about 25% of GDP. That was last year...before health care and another stimulus package. So, during 2009 the business of government dramatically increased its debt to fund the gap produced by a 25% drop in gross revenues while it increased its overhead by 20%! Vertually none of the money was used to acquire or invest in any assets that will produce future income. Quite to the contrary the borrowed money was used to prevent any expense recuctions in government operations and in its distribution to the states it required an ongoing committment to maintain spending levels.
I suggest that if you made accurate graphs of what was really going on with debt, seperating private from public, it would be even more alarming...Imagine that for the past 50 years the graph the revenue and government spending were tracking roughly from the bottom left to the upper right and during any decade the gap between the two lines narrowed a bit, sometime touched, then gapped away..but the two lines trended in the same direction..then in 2009 you see the spending line shoot dramatically up and the revenue line dropps dramatically down. Your graph of a tube snake all of a sudden turns into an alligator. It can't go on that way for very long.
I am sure they cherry picked the beginning of the chart to maximize its presentation, and simply run a line through the center of the action. As proof, it may be as much curve fitting as significant.
As someone said, you can make statistics say anything.
While that may be true it doesn't change the fact that the US has to acquire increasing amounts of debt to pay for social plans like Medicare, Social Security, and now National Health Care. Since Congress raided and depleted social security the only way to keep the program alive is to raise taxes, reduce benefits, or a combination thereof. Social Security has now reached the point where outflows outpace inflows so now they have to tap the reserves. Ooops! There are no reserves. Solution: Higher taxes or less benefits. Which or both? As Ed mentioned above, debt it being used just to make payroll. There's trouble on the horizon no matter how you fit your curve.
to solve the social security problem the gov will engineer a flu virus that kills only elderly (the vaccine will be available too late to save the general population but the top gov officials will receive it just in time). the flu is convenient because it generally hits elderly harder (the pig flu being an exception) and once every 30 years or so there is a very virulent strain. so nobody should suspect if such a strain emerges from "nowhere" in a few years and kill a bunch of older folks.
+1
That is the question, isn't it? How much longer can the bullshit lies continue? The equities and FX markets are complete lies - only "up," because the gov't has flooded the markets - with the Federal Reserve admitting they are "playing" in the FX markets and the banks saying that they are "making money" at their "institutional investment desks" aka risking money in the equities markets. The bond markets are just about ready to collapse (Buffet with less risk premium than the US gov't?!?!?). The states only surviving on the handouts from the bankrupt federal gov't...the biggest example being California, the eighth largest economy in the world, totally dependent upon the fed...how much longer???
It appears to me that either we collapse within the next two months or so....or we collapse in 2012 - 2012 seems like the time the "power elite" have chosen for a "world collapse" Two months or so...so that martial law can be declared and there are no US elections...the banks are closing out loans and "deals" before the end of this quarter - why?
Just my $0.02....or whatever the equivalent in real dollars is
-gastropod