Even as policy wonks are calling for the U.S. federal government to turn away from monetary policy and “austerity”, Treasury debt outstanding has already seen massive annual increases since 2007, and not just in the US but around the entire world, Bloomberg market strategist Chris Maloney writes.
Which brings us to this week’s report on the U.S. federal government’s monthly budget statement. As Maloney puts it, “for eight-plus years now the U.S. federal government’s fiscal policy has been one of unprecedented deficit spending, pushing total debt to $15.3t from $6.1t (a 153% increase); this excludes ~$5.1t intra-govt debt holdings.”
Yet GDP since the end of Jan. 2008-June 2009 recession has averaged just 2.1%, below the 2.7% average seen from 2000-2007 while the last five quarters have seen a steady drop from 3.3% to 1.2%.
Meanwhile, debt has continued its relentless rise higher, pushing the ratio of US government debt/GDP to an all time post World War II high of 105%.
The rest of the world isn’t any better; in fact when adding across all debt categories, a terrifying chart emerges.
The methodology which counts government spending as part of GDP (“economic growth”) is arguably flawed as “growth,” in order to make sense, must be profitable.
As Maloney correctly puts it, spending certainly stimulates economic activity but not necessarily economic growth – recall that the Soviet Union “grew” its economy right into the dustbin of history.
Fiscal stimulus is already in the cards as CBO is projecting uninterrupted deficits for the next decade, totaling an additional $9.4t in debt and warns these “reflect the significant long-term budgetary challenges facing the nation.”
According to these forecasts the deficit as a percentage of GDP will grow to 4.9% in 2026 from 2.9% this year and in dollar terms to $1.36t from $439 billion.
This is a long-term trend as U.S. federal government has managed an annual budget surplus just 4 years out of the last 46; it has averaged $249b in annual deficits over that period.
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Keep in mind that any time someone says “fiscal stimulus” all they mean is increasing debt even more; what they don’t say is that the reason the global economy is in its current slow (and slowing) growth predicament, is due to unprecedented amount of global debt (debt/GDP was 286% as of Q2 2014 according to McKinsey; it is well over 300% currently), which forces central banks to intervene and keep interest rates as low as possible by monetizing debt.
And what they never add is that one can’t grow out of a debt hole by adding even more debt, which is precisely what the so called proposed “fiscal stimulus” solution is all about.
Chris Maloney’s conclusion:
Issuing new debt eats our tomorrows today; eventually it needs to be paid back, thereby lowering future demand. “Fiscal stimulus” is in the long-run a wash, at best, and pushed too far it can be fatal.
Alas, this potentially “fatal” solution is all the world has left.
Funny thing – there is an article from Safehaven this AM arguing about inflation/deflation vs “What is money?”
Easy – Paper money and credit is an IOU backed by nothing other than a “promise to pay” tomorrow. The IOU might as well be sticky note with the amount written on it!
Inflation/deflation is easy too – no matter which way, you and I lose!!
The USA is at 110% power, on a pleasure cruise overloaded with freeloaders and out of runway; glad I’m going to be in the mountains letting my beard grow as I watch the Democrats put on The Biggest Stupid Venezuelan Air Show in history.
The primary problem is that people equate Treasury debt with prefunded equity
if I may interject:
on this site, I’m assuming that we all know the difference between paper wealth and real wealth.
therefore, paper wealth/debt is essentially meaningless because our real wealth .. our oil resources, our land, our human capital, our mining operations, our fishing operations, our agriculture, our housing, our commercial business … these are what sustains our country and provides actual value.
my argument is that our debt means very little. what matters is our resources and our ability to import/export resources into our country and abroad. therefore, I am not remotely worried about the paper wealth and debt that alternative media frets over such as zero hedge and TBP.
can anyone refute my contention? I would love to hear how paper wealth is going to destroy our nation when we have an abundance of real wealth throughout our country.
thank you with humility.
Good question
What you owe, you owe
What you own, you may not own
Paper debt is an amount owed, and must be taken as seriously as the real assets you articulated
If not, then neither assets nor debt are worth the paper they are written on, or the oil resources, land, etc you mentioned
Basically the owners the owners poof money (debt) into existence out of thin air and immediately convert their cut (the vig) into real assets or other endeavors to double down on gaming the system. The owners implement an income tax to collect the ongoing, never ending vig to service the debt. They repeat this for several generations buying up real assets using corporations (front companies that funnel wealth back to the owners) all along the way. The owners also spend time designing new systems (NWO corporatocracy is currently warming up in the bullpen) to replace the old systems that were designed to fail which they cover up with giant wars (sacrificing your children) before ultimately presenting their new system (also designed to fail in several generations time) to “save you from and prevent future calaminty” but you’ll have to accept still fewer freedoms to achieve this (always just out of reach) utopia because ‘Murica! Fuck yeah!!
(Did you notice the part where they create the problems and the solutions? Most don’t.)
All of the resources you imagine to be “ours” are either owned by or more importantly, controlled by the corporations in the same way that the corporation of the UNITED STATES controls all of the oil in the middle east AND the payment mechanisms for said oil. (no EURO’s, Yen or gold allowed as they so eloquently explained to Saddam and Gaddafi).
All for the low, low price of sacrificing a few of your children, personal wealth and freedom and your dignity.
It’s not the paper debt you need to be afraid of, it’s the effects of the dying paper debt you should fear along with the enforcement arm of our owners mafia (the US military and alphabet police).
Doesn’t it boil down to who gets the (counterfeit) paper to spend like money and who gets saddled with the debt.
thank you for the explanations. I can see how the advantages of fiat money can buy up real wealth for the oligarchs while the lower/middle classes are slowly being bled out due to inflation by the constant increase in money supply.
modern day economics is very convoluted and distorted such as the mechanisms of fractional reserve banking. it is clearly all slanted towards the oligarchy’s benefit to, as Servant said, come up with different ways to enrich themselves and buy up real assets with fiat money.
however, I am of the belief that these oligarchs want to preserve the status quo at all costs, and actually mean no harm to our citizens on a physical level. yes, they inflate the purchasing power of the dollar away while exploiting middle eastern and poor countries but for the major superpowers like the US, China, and Russia — these countries want peace between each other so they can keep the scam going, living large on fake money that is accepted worldwide even though a minority of the world’s populations know that its worthless because of the inability to actually pay back this debt.
then again, I’m just one man trying to make sense of it all. I have no idea what’s going to happen when the Fed finally lets interest rates rise to their natural level.
I do love alternative media sites like TBP and have followed you guys since 2011 when I was in my early twenties and had zero clue how our nation exploits its own citizens as well as the rest of the world. at least I can see through some of the oligarchy’s bullshit now. I still think we are living in a prosperous and opportunistic time in the US despite the pessimism expressed on this site … I’m just hoping our debt/financial issues can be resolved civilly and without war .. but history says otherwise ….