{"id":3904,"date":"2012-03-21T05:06:24","date_gmt":"2012-03-21T09:06:24","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=3904"},"modified":"2012-03-21T05:06:24","modified_gmt":"2012-03-21T09:06:24","slug":"us-public-debt-growing-at-unsustainable-rate","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2012\/03\/21\/us-public-debt-growing-at-unsustainable-rate\/","title":{"rendered":"US public debt growing at unsustainable rate"},"content":{"rendered":"<p>We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to &#8220;Greenspan&#8217;s bubble.&#8221; Treasury was just as culpable, however, with the massive 2004-2005 surge in public debt flooding the market with liquidity. The repeat in 2008-2011 was more justifiable: the spike in public debt was necessary to offset the sharp decline in private (non-financial) debt which would have caused a deflationary spiral. The effect was to smooth out the fall in total domestic debt (public and private) and create a relatively &#8220;soft&#8221; landing for the economy.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2012\/2012-03-21-debt.png?w=525&#038;ssl=1\" alt=\"Government, Domestic and Private (Non-Financial) Debt Growth\" \/><\/p>\n<blockquote>\n<h2>Quick Glossary<\/h2>\n<ul>\n<li><strong>Domestic debt<\/strong> is all local debt, both government and private sector<\/li>\n<li><strong>Non-financial<\/strong> excludes the financial sector from debt calculations as it largely acts as a conduit for other sectors.<\/li>\n<li><strong>Government debt<\/strong> includes federal, state and local government borrowing<\/li>\n<li><strong>Private debt<\/strong> is all Domestic debt other than Government. It includes both Corporate and Household debt.<\/li>\n<li><strong>Household debt<\/strong> is all debt owed by private households, as opposed to the corporate sector.<\/li>\n<li><strong>GDP<\/strong> is the market value of all final (excludes intermediate) goods and services produced within a country in a given year\/quarter.<\/li>\n<li><strong>Nominal<\/strong> means before adjustment for inflation.<\/li>\n<\/ul>\n<\/blockquote>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2012\/2012-03-21-debt-gdp2.png?w=525&#038;ssl=1\" alt=\"Government and Domestic Debt Growth compared to GDP\" \/><\/p>\n<p>Public debt growth is slowing but needs to fall further in order to keep the economy on a sustainable path. A rough rule of thumb is that public debt should grow no faster than GDP &#8212; so that it does not outgrow the nation&#8217;s ability to repay. With public debt growing at 8.6% and GDP at a nominal rate of 4.1%, Treasury&#8217;s ability to repay &#8212; and its credit rating &#8212; is deteriorating. Reduction of public debt growth to a rate of no higher than 4.1% is necessary. Increases in tax collections as a percentage of GDP would alter this basic equation, but are highly unpopular and act as a disincentive to further GDP growth.<\/p>\n<p>It should be evident from the above chart that GDP contracts when the rate of domestic debt growth <span style=\"text-decoration:underline;\">slows<\/span>. If\u00a0domestic debt ever had to <span style=\"text-decoration:underline;\">contract<\/span> (below zero growth), you can imagine the impact that it would have on GDP. That is a debt-deflation spiral and should be avoided at all costs. So, although we would all like to see a sharp reduction in debt levels, there are limitations on how quickly this can be achieved &#8212; without smashing the economy into a brick wall.<\/p>\n<p>We can also see that GDP growth for the past decade has been largely debt-fueled. Only recently has GDP growth surged above the growth rate of domestic debt, reflecting an increase in <a title=\"BLS: Labor and Manufacturing Productivity\" href=\"http:\/\/www.bls.gov\/news.release\/prod2.nr0.htm\" target=\"_blank\">productivity<\/a>. That is what we (not just the US) have to strive for: to widen the positive gap between GDP and domestic debt growth, while bringing public debt growth below the nominal rate of growth in GDP.<\/p>\n<p>Reducing the rate of growth in public debt will not be easy, however, with private debt growing at a miserly 0.8% compared to domestic debt at 3.0%. The difference is made up by government debt, growing at a whopping 8.6%. Private capital expenditure, however, has in many cases been brought-forward to take advantage of accelerated tax write-offs and is likely to slow in the months ahead. Even worse is household debt which is contracting at an annual rate of 0.9%. So the medium-term outlook for private debt may be near-zero growth. And further slowing of public debt growth would court another recession.<\/p>\n<p><img data-recalc-dims=\"1\" decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2012\/201203_debt_house_priv_dom.png?w=525&#038;ssl=1\" alt=\"Domestic, Household and Private (Non-Financial) Debt Growth\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to &#8220;Greenspan&#8217;s bubble.&#8221; Treasury was just as culpable, however, with the massive 2004-2005 surge in public debt flooding the market with liquidity. The repeat in 2008-2011 was more justifiable: the spike in public debt was necessary to offset &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2012\/03\/21\/us-public-debt-growing-at-unsustainable-rate\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;US public debt growing at unsustainable rate&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[45,34],"tags":[966,1078,1726,2771,2808],"class_list":["post-3904","post","type-post","status-publish","format-standard","hentry","category-debt-levels","category-us-canada-countries-regions","tag-debt-growth","tag-domestic-debt","tag-household-debt","tag-private-non-financial-debt","tag-public-debt"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>US public debt growing at unsustainable rate - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"US public debt growing at unsustainable rate - the patient investor\" \/>\n<meta property=\"og:description\" content=\"We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to &#8220;Greenspan&#8217;s bubble.&#8221; Treasury was just as culpable, however, with the massive 2004-2005 surge in public debt flooding the market with liquidity. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-10Y","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":3188,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/12\/20\/the-path-to-recovery-how-to-bring-the-debt-binge-under-control\/","url_meta":{"origin":3904,"position":0},"title":"The path to recovery: how to bring the debt binge under control","author":"ColinTwiggs","date":"December 20, 2011","format":false,"excerpt":"The debt binge since 1975, fueled by an easy-money policy from the Fed, has landed the US economy in serious difficulties. Wall Street no doubt lobbied hard for debt expansion, because of the boost to interest margins, with little thought as to their own vulnerability. There can be no justification\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":2618,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/12\/14\/private-sector-debt-growth-warns-of-anemic-recovery\/","url_meta":{"origin":3904,"position":1},"title":"Private sector debt growth warns of anemic recovery","author":"ColinTwiggs","date":"December 14, 2011","format":false,"excerpt":"The cause of current anemic GDP growth is evident from the recently-released Z1 Flow of Funds report. GDP recovery from 2008\/2009 is accompanied by only a modest rise in Domestic (Non-Financial) Debt -- which is now constraining further growth. Domestic (Non-Financial) Debt is made up of Government Debt and Private\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9474,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/03\/12\/how-a-private-credit-boom-can-lead-to-a-sovereign-debt-crises-frbsf\/","url_meta":{"origin":3904,"position":2},"title":"How a private credit boom can lead to a sovereign debt crises | FRBSF","author":"ColinTwiggs","date":"March 12, 2014","format":false,"excerpt":"From a FRBSF paper Private Credit and Public Debt in Financial Crises by \u00d2scar Jord\u00e0, Moritz Schularick, and Alan M. Taylor: Recovery from a recession triggered by a financial crisis is greatly influenced by the government\u2019s fiscal position. A financial crisis puts considerable stress on the government\u2019s budget, sometimes triggering\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":3345,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/01\/25\/whats-going-on-with-debt-in-u-s-real-time-economics-wsj\/","url_meta":{"origin":3904,"position":3},"title":"What\u2019s Going on With Debt in U.S.? &#8211; Real Time Economics &#8211; WSJ","author":"ColinTwiggs","date":"January 25, 2012","format":false,"excerpt":"The chart shows clearly the build up of debt heading into the bust, and the subsequent deleveraging. Overall public and private debt, by this measure, peaked at 302% of GDP in the first quarter of 2009. Since then, it has fallen to 279% as the economy has grown and some\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":9481,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/03\/12\/high-public-debt-leads-to-prolonged-recessions\/","url_meta":{"origin":3904,"position":4},"title":"High public debt impedes recovery","author":"ColinTwiggs","date":"March 12, 2014","format":false,"excerpt":"This graph from a FRBSF paper Private Credit and Public Debt in Financial Crises, by \u00d2scar Jord\u00e0, Moritz Schularick, and Alan M. Taylor, perfectly illustrates how high public debt levels impede the ability of an economy to recover from a financial crisis: Figure 3....... shows that high levels of public\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"Recessions and Public Debt Levels","src":"https:\/\/i0.wp.com\/www.frbsf.org\/economic-research\/files\/2014-07-3.png?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":5623,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/10\/01\/steve-keen-on-post-keynesian-macroeconomics\/","url_meta":{"origin":3904,"position":5},"title":"Steve Keen on Post-Keynesian Macroeconomics","author":"Colin Twiggs","date":"October 1, 2012","format":false,"excerpt":"Prof Steve Keen's presentation to the UMKC Post Keynesian conference in 2012. http:\/\/youtu.be\/UzxQcTOs4JA Paul Krugman would argue that Income = Aggregate Demand when the economy is in equilibrium. Steve Keen shows that the economy is not in equilibrium when aggregate debt is rising or falling: Income = Aggregate Demand +\u2026","rel":"","context":"In &quot;Debt Levels&quot;","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/img.youtube.com\/vi\/UzxQcTOs4JA\/0.jpg?resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/3904","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=3904"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/3904\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=3904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=3904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=3904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}