Monday, February 23, 2015

Fundamentally Flawed - Chapter 3.2, How We Got Here - Growth of Debt vs. GDP

45 years of ever increasing debt loads, social safety net growth, corporate welfare.  45 years of Rep’s and Dem’s in the White House and Congress bought by special interests and politicians buying citizens votes with laws enacted absent the revenue to pay for them.   We have a Treasury and Federal Reserve willing to “innovate” and wordsmith to avoid the national recognition of the true difficulties and implications of our present situation.  45 years of intentionally avoiding an honest accounting of our national obligations.  Mislabeling and misdirecting to pretend these obligations can and will be honored.  45 years of cornice like debt and promise accumulation simply awaiting the avalanche of claimant redemptions and debt repayments.

First, an historical snapshot of the last time US Treasury debt was larger than our economy (debt/GDP in excess of 100% in 1946) and subsequent progress of debt vs. GDP.  During the 14 year period post WWII, the US engaged in “austerity” while GDP doubled in size curing America’s post war budgetary problems…but anyone suggesting there is a parallel from post WWII’s combination of austerity and economic growth to today’s situation is simply ludicrous.  Obviously austerity and budgetary constraints fall away over the decades and are replaced by credit and debt…but GDP and wage growth do not continue to maintain pace with the debt…


  • ’46-’59 (14yrs)
    • Debt grew 1.06x’s ($269 B to $285 B)
    • GDP grew 2.2x’s ($228 B to $525 B); Income (Wages/Salary) grew 2.3x’s ($115 B to $264 B)
  • ’60-’75 (15yrs)
    • Debt grew 2x’s ($285 B to $533 B)
    • GDP grew 3.3x’s ($525 B to $1.7 T); Income grew 3.1x’s ($271 B to $846 B)
      • ’65 Great Society initiated, ’69 unfunded liabilities begin under a “Unified Budget”
Post-Vietnam War:
  • ’76 -’04 (28yrs)
    • Debt grew 15x’s ($533 B à $7.4 T); Unfunded liability 15x’s ($3 T to $45 T)
    • GDP grew 7.3x’s ($1.7 T à $12.4 T); Income grew 6.4x’s ($871 B to $5.5 T)
  • ’05 -’14 (9yrs)
    • Debt grew 2.4x’s ($7.4 T à $18 T); Unfunded liability 2.2x’s ($45 T to $100 T)
    • GDP grew 1.4x’s or 140% ($12.4 T à $18 T); Income grew 1.35x’s ($5.6 T to $7.5 T)
      • Z1 Household net worth grew 1.25x’s from $65 T to $82T

I won’t even get into the overstatement of economic activity within the GDP numbers…just noting there is an overstatement of activity.