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US debt and growth bubble
This is a chart I made to illustrate that US GDP growth has been inflated by credit growth. It shows that the US was on an unsustainable growth path, fuelled by credit. 2000-2003 could have been a balancing period, but the Fed aborted this healing process by lowering interest rates, and encouraging cheap money.
I have included a minus 5% growth for 2009, which would bring the US within the boundaries of a long term growth path. Any measure that would try to push US growth above this path, would be a waste. It would create a new debt-fuelled unsustainable growth period, which would end in tears, and with a new (public) debt bubble.
The chart can be improved, but I like this first draft very much!
5 Comments
-
Frank
On 16 Apr, 2009
The debt and growth bubble is beyond a US problem. From 2003 on the whole world lived in a worldwide exponential credit and debt boom that fueled an unprecedented synchronised economic boom. Car sales, construction, recreation, derivatives, ... all knew excessive sales and profits. Happy times were fueled by debt which made them illusionary in the first place. The 30 year creditboom that rose exponentially the last decade is finally coming to an end. The overburden of debt is destroying families, companies and governments. There is simply to much debt to pay of which makes growth with more debt impossible. Everybody scrambles to pay off his debt and even tough Bernanke is printing like hell, the amounts of money he creates pale to the mountain of debt haunting the system. The great debtunwind that could not happen according to Ben is happening before our eyes and it seems unstoppable. Von Mises warned for this many times before. The result is a vicious deflation that destroyes our illusionary wealth. The deflation reveals to us that our growth was not real but excessive and illusionary. Spending is out, saving is in. If you compare our future to what we had in 2007 this crisis will go on forever because growth levels of 2007 are not coming back for a long long time. This is the beginning of an new era. A lot of people are unprepared and thinking that soon we will return to the good old happy days. Think again. Further more this debt problem is converging with many other problems like peak oil, food, water, ... (peak everything), a huge demographic problem, a global warming problem, ... Even if we succeed in solving the problems of our fiat money system, other problems are lining up. We are in serious trouble and it's time to wake up and start action.
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koen2
On 16 Apr, 2009
Long term 'sustainable' (credit bubble less) gdp growth may be 2 percent, but I find it astonishingly simplistic to imply that this is the growth that we will get. As seems to be done in this article. It makes completely abstraction of post credit bubble debt deflation dynamics.
http://tribes.tribe.net/rawadvice/thread/bf7632cc-245b-4d23-b03a-c248142fbd11
Marriner S. Eccles, who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from November 1934 to February 1948, detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951)[28]:
...
The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.
Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.
This then, was my reading of what brought on the depression. -
Marty
On 16 Apr, 2009
@Frank
I am afraid you are right !
Talking about peak oil, what do you think about this ?
http://www.bbc.co.uk/programmes/b00hs8zp -
Frank
On 16 Apr, 2009
@marty
Looks interesting but I can't view it from Belgium. Only UK visitors are allowed. Any sugestions? -
Marty
On 16 Apr, 2009
Try this
http://www.viddler.com/explore/PermaScience/videos/4/
