{"id":6106,"date":"2012-11-11T21:02:50","date_gmt":"2012-11-12T02:02:50","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=6106"},"modified":"2012-11-11T21:02:50","modified_gmt":"2012-11-12T02:02:50","slug":"taking-the-leverage-out-of-economic-growth-reuters","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2012\/11\/11\/taking-the-leverage-out-of-economic-growth-reuters\/","title":{"rendered":"Taking the leverage out of economic growth | Reuters"},"content":{"rendered":"

Edward Hadas points out that long-term credit growth has exceeded growth in nominal GDP (real GDP plus inflation) in the US and Europe for some time. Not only does this fuel a credit bubble but it leads to a build up of inflationary pressure within the economy. If not evident in consumer prices it is likely to emerge as an asset bubble.<\/p>\n

For the last two decades, accelerating credit has been closely correlated with the change in GDP \u2013 both in the United States and the euro zone. GDP growth tended to speed up shortly after the rate of credit growth increased, and slowed down after credit growth started to decrease.<\/p>\n

This correlation implies there is an equilibrium rate of credit growth \u2013 the rate that corresponds to the long-term pace of nominal GDP growth. Though the pace of credit growth can vary from year to year, over time private debt and nominal GDP have to expand at the same rate for overall leverage to stay constant. That\u2019s not what happened in the past two decades. Since 1990, Deutsche found a significant gap between credit and GDP growth in the United States and the euro zone.<\/p>\n

In both, the neutral rate of credit growth \u2013 the rate associated with the economy\u2019s long-term growth rate \u2013 was 7 percent. Those long-term nominal GDP growth rates were lower: 4.8 percent in the United States and 4 percent in the euro zone. In a single year, the difference of 2-3 percentage points doesn\u2019t have much effect. Over a generation, though, it leads to a massive increase in the ratio of private debt to GDP.<\/p><\/blockquote>\n

The gap between growth in Domestic Debt and Nominal GDP widened in 2004\/5 during the height of the property bubble and has narrowed to near zero since 2010.
\n\"Domestic
\nHopefully the Fed have learned their lesson and maintain this course in future.<\/p>\n

via Analysis & Opinion | Reuters<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Edward Hadas points out that long-term credit growth has exceeded growth in nominal GDP (real GDP plus inflation) in the US and Europe for some time. Not only does this fuel a credit bubble but it leads to a build up of inflationary pressure within the economy. If not evident in consumer prices it is … <\/p>\n

Continue reading “Taking the leverage out of economic growth | Reuters”<\/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":[45,33,34],"tags":[881,2486],"class_list":["post-6106","post","type-post","status-publish","format-standard","hentry","category-debt-levels","category-uk-europe-countries-regions","category-us-canada-countries-regions","tag-credit-growth","tag-nominal-gdp-growth"],"yoast_head":"\nTaking the leverage out of economic growth | Reuters - 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=\"Taking the leverage out of economic growth | Reuters - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Edward Hadas points out that long-term credit growth has exceeded growth in nominal GDP (real GDP plus inflation) in the US and Europe for some time. 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Since then support for this approach has grown, with Lars Christensen, an economist with the Danish central bank, coining the term Market Monetarism. Sumner holds that inflation is\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":58853,"url":"https:\/\/thepatientinvestor.com\/index.php\/2024\/10\/31\/gdp-gradually-slowing\/","url_meta":{"origin":6106,"position":1},"title":"GDP gradually slowing","author":"Colin Twiggs","date":"October 31, 2024","format":false,"excerpt":"Real GDP growth slowed slightly to 2.66% over the twelve months ending in Q3, compared to 3.04% for the previous quarter. Real quarterly growth is essentially unchanged at 0.70% (2.8% annualized) in Q3. Nominal GDP growth (gray below) slowed to 4.94% for the four quarters ending in Q3. Ten-year Treasury\u2026","rel":"","context":"In "GDP and Activity"","block_context":{"text":"GDP and Activity","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/gdp-and-activity\/"},"img":{"alt_text":"Real GDP Growth","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-10-30-realgdp.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-10-30-realgdp.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-10-30-realgdp.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":62206,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/07\/31\/fed-stands-firm-so-does-boj\/","url_meta":{"origin":6106,"position":2},"title":"Fed stands firm, so does BOJ","author":"Colin Twiggs","date":"July 31, 2025","format":false,"excerpt":"Key Points The Fed held the funds rate target steady at 4.25% to 4.50% The Bank of Japan followed up, holding its policy rate steady at 0.5% The S&P 500 and Dow Jones Industrial Average eased slightly The US Dollar Index jumped, weakening demand for gold Fed Chair Jerome Powell\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-07-30-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-07-30-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-07-30-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":7632,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/05\/01\/weak-dollar-outlook\/","url_meta":{"origin":6106,"position":3},"title":"Weaker Dollar Outlook","author":"ColinTwiggs","date":"May 1, 2013","format":false,"excerpt":"Recovery of the Dollar has been overrated. With restrictions on fiscal deficits, it will be difficult to contain deflationary pressures from the Great Credit Contraction which is likely to endure for at least a decade -- following the Great Credit Bubble over the last 40 years. Fed quantitative easing is\u2026","rel":"","context":"In "US & Canada"","block_context":{"text":"US & Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":62212,"url":"https:\/\/thepatientinvestor.com\/index.php\/2025\/08\/02\/weak-labor-report-hammers-stocks\/","url_meta":{"origin":6106,"position":4},"title":"Weak labor report hammers stocks","author":"Colin Twiggs","date":"August 2, 2025","format":false,"excerpt":"Key Points The S&P 500 and Dow fell sharply on the poor July jobs report Financial markets warn of easy credit conditions, which could lead to markets mispricing risk Real GDP growth is misleading due to the buildup of inventories in Q1, ahead of tariffs, and their subsequent rundown in\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Employment Growth","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-08-04-jobs2.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-08-04-jobs2.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2025\/2025-08-04-jobs2.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":3904,"url":"https:\/\/thepatientinvestor.com\/index.php\/2012\/03\/21\/us-public-debt-growing-at-unsustainable-rate\/","url_meta":{"origin":6106,"position":5},"title":"US public debt growing at unsustainable rate","author":"Colin Twiggs","date":"March 21, 2012","format":false,"excerpt":"We often blame Fed monetary policy for the GFC, with interest rates at exceptionally low levels leading to \"Greenspan's bubble.\" 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\u2026","rel":"","context":"In "Debt Levels"","block_context":{"text":"Debt Levels","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/debt-levels\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/6106","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=6106"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/6106\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=6106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=6106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=6106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}