Chart of the day: Debt to GDP

Since the beginning of the bull market in 1982, the U.S. has become a society hooked on debt. Total debt (including financial services companies) has nearly doubled as a percentage of GDP in those 25-odd years (from 133% of GDP at $4 trillion of debt in 1981 on GDP of $3 trillion to 221% of GDP at $31 trillion of debt in 2007 on GDP of $14 trillion).

What this suggests is that the U.S. is not producing enough to sustain adequate economic growth without huge amounts of debt. Ultimately, this debt burden will have to paid off or defaulted upon. Either way, the U.S. faces a less prosperous future, as a result.

This post is part of my series.

Federal Reserve Flow of Funds

  1. Gregory K. Soderberg says

    We’ve been ‘hooked on debt’ since our money was switched from an evidence of wealth to an evidence debt. We use evidence of debt for money. All money is created as loans when we pledge our collateral and sign promissory notes. The principal of the loan is uncreated when it is repaid. Beside the servitude to the lender required of borrowing, no money is ever created to pay interest with. Money we pay interest with or try to save is simply other loan principal captured in the process of commerce. When we repay principal and interest, we really just transfer the debt to someone else. Because the interest cannot be paid the total indebtedness must grow. Time does not increase the money supply. Time only increases the indebtedness. The HONEST and JUST SOLUTION is to create money and ‘spend’ it not ‘lend’ it into circulation. Spend it as a payment for new production that benefits all society equally…”Coin money”? “Provide Post Roads”? Perhaps ‘spend’ it in for public roads and bridges in lieu of taxation or borrowing. Can’t pay debt with more debt and get rid of the debt.

  2. VacantHomes says

    If you take this chart back to 1922, it's *much* scarier:

    (Well, this chart is private+public debt, not just private debt. But the scary thing is that Debt-to-GDP is mean-reverting.)

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