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Monday, February 23, 2015

Fundamentally Flawed - Chapter 3.3, Total Public Debt / Obligations vs. Growth


Let’s go back to our 1976 - 2014 numbers and recalculate based on total Federal Government debt and unfunded liabilities:
  • ’76-’14
    • debt (total government obligations) grew 33x’s 188x’s ($533 B à $17.5 T $100 T*)
    • GDP grew 10.5x’s ($1.7 T to 18 T)
      • Household net worth grew 15x’s ($5.4 to $82 T), median household income grew 3x’s (est. $17k to $51k), Real median household income grew 1.1x’s ($45k to $51k)

Why We Can’t Pay the Debt or Even Reduce the Load!

Take 2013 Federal Government tax revenue and spending as an illustration:

  • $16.8 Trillion US economy (gross domestic product)
    • $2.8 Trillion Federal tax revenue (taxes in)
    • $3.5 Trillion Federal budget (spending out)
      • -$680 Billion budget deficit (bridged by sale of Treasury debt spent now and counted as a portion of GDP)
      • = $550 Billion economic growth?!?
        • PLEASE NOTE - The ’13 GDP “growth” is less than the new federal debt incurred (although the new debt spent is counted as new GDP) and the interest on the debt will need be serviced indefinitely?!?

A slightly different snapshot in the next chart of the ’07-’13 period…debt and unfunded liabilities growth dwarf wages, tax revenue, and GDP growth.  There is no growth in GDP but growth in federal debt.

Wage, GDP, & Tax Source, US BEA, GDP; Debt Source, US Department of Treasury; Source, 2013 OASDI and Medicare Trustees’ Reports.
Federal Debt load:  Full time wages and total federal debt kept a close relationship until post 2000, when debt moved far in advance of average wage/salary advances (below)…
Full time wages vs. total federal obligations (Treasury debt plus all pensions plus all net present value (NPV) unfunded liabilities)…below.  And the reason we feel no pain is due to the red line; the collapsed interest rates on all debt, federal and private.  And this is why interest rates cannot rise and no “normalization” may take place with this debt load.
The below graph shows the relationships between the columns representing the slowing growth of the total US population, major slowdown in jobs creation, and declining full time jobs creation.  This is pitted against the lines showing all US salary / wage growth, federal debt, and household net worth.  What is clear is the increase in HHNW since 2007 is tied to credit and debt rather than sustainable growing wages.
Population Source, OECD; Employee Source, US Bureau of Labor Statistics; HHNW Source, Federal Reserve System, Z.1 Financial Accounts; Salary/Wage Source, Wage, GDP, & Tax Source, US BEA
Same as above chart but with a shorter timeframe showing the deteriorating economic trends being masked by debt and leverage.
Total Debt Source, 2013 OASDI and Medicare Trustees’ Reports. (pg. 183); Population Source, OECD; Employee Source, US Bureau of Labor Statistics; HHNW Source, Federal Reserve System, Z.1 Financial Accounts; Salary/Wage Source, Wage, GDP, & Tax Source, US BEA
Deteriorating jobs creation, ramping 55+ year olds working primarily part time jobs to make ends meet, collapsing 25-54 year old employment and full time job creation (chart below).  And all this results in a ramping equity market…and an utter disconnect with the real economy.
Population Source, OECD; Employee Source, US Bureau of Labor Statistics; HHNW Source, Federal Reserve System, Z.1 Financial Accounts; Salary/Wage Source, Wage, GDP, & Tax Source, US BEA
Finally, growth in government jobs has been slowing for 5 decades and is now negative; all job growth this decade is due to private sector job growth.  Please note that big hole in job creation from ’00-’10…all job growth since ’10 is merely keeping pace with the larger US population but not making any headway in resolving the massive job dearth of ’00-’10.  However, the US is now overdue for another recession (on average every 6.5 years since WWII), and this would likely wipe out most job gains for a second decade in a row.
Population Source, OECD; Employee Source, US Bureau of Labor Statistics
Lastly, America's declining job creation over time.  Below compares the growth in population vs. net growth in jobs (both in millions and %)...or the % of new jobs per the rising population.  The entire jobs gain since '08 is due to rising part time offsetting declining full time jobs.
Source, US BLS


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