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Tuesday, June 24, 2008

Public and Private Debt vs GDP: The Illusion of Prosperity

There isn't much to say.
Click on the charts, from top to bottom.


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Anonymous said...

The first chart also seems to show that from 1955 to 1983 the household debt also rose faster than GDP. That
by itself it does not say anything.
As a matter of fact, the crosses of the lines may be more due to changes on how the GDP is computed than to anything else.
It is interesting to notice, though, that we are on the left side of a parabolic ascend of GDP and debt, which actually is only a parabolic descend of purchasing power of the dollar.

Anonymous said...

The third chart does not support your hypothesis that the fall of the Credit Market debt Outstanding will suck the GDP down.
As a matter of fact, if you see all the times that the blue line crossed the red line, the red line (GDP) was near a bottom.
There does not seem to be a correlation of these two series.

Ben Bittrolff said...


"The third chart does not support your hypothesis that the fall of the Credit Market debt Outstanding will suck the GDP down."

Woooaaa! Hold on a minute. I specifically say there is a lag.

I also postulate that the growth in GDP from late 2000 until the present was fueled primarily by an expansion of public and private debt... not prior growth.

How to read the last chart as I intended: Basically the rate of change of consumer debt really accelerate in 2000, just before the recession marker. GDP however does not accelerate upward, even falling into a recession. Then with consumer debt growth at its greatest, around 12%, GDP growth remains anemic. FROM THIS, I postulate that as debt growth first decelerates and then even turn negative (blue line as it is falling now), GDP will get sucked down in the future (red line, not yet falling) because it would appear that it was an expansion of debt that maintined the last few years of GDP growth...

MyFriendFate said...

I'm sure I'm just missing something basic, but, on the 3rd chart, how come GDP isn't negative during the recessions?

Anonymous said...

I've gone through this data extensively. I've got a paper in the works on this topic.

The bottom line is this: from Q1 2001 to Q4 2007 looking only at public debt and household debt (not corporate debt), debt obligations grew by over $10 trillion. During the same period, GDP grew by about $4 trillion. If you do the math, you come to this conclusion: The United States borrowed $2.43 to earn $1 of GDP over the past 7 years. Way to go, Mr. Bush.

Economic growth depends on credit expansion. It's going to be a long time before we see 4% annual rates of growth again.

Ben Bittrolff said...


"The United States borrowed $2.43 to earn $1 of GDP over the past 7 years."

That's what I was trying to say with my three little charts.

Now we know debt creation has reversed violently...

... so we can all just imagine the pending impact on future GDP.

BTW, if you don't mind, I'd love to read your paper upon completion.


Ben Bittrolff said...


"I'm sure I'm just missing something basic, but, on the 3rd chart, how come GDP isn't negative during the recessions?"

That GDP data series is the Seasonally Adjusted Annual Rate (SAAR)... and its nominal.

Anonymous said...

Has the calculation for GDP been changed during the time period of these charts? Is so, it is necessary to recalculate GDP based on one set of the same metrics, otherwise you are comparing apples to oranges. This problem is probably the most severe with the inflation figures, which by themselves make adjustments to nominal GDP and therefore the real GDP figures non-comparable. Things are probably much worse than these graphs indicate.

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