Debt Denial

Q115 advance US GDP was released today and it was a dog, coming in at 0.2% annualised against the 1% consensus forecasts by economists and at only 9%, or -91%, of the 2.2% reported for Q414.

The newswires, predictably, have been stumbling to explain the slump, citing the recent “inclement weather and its effect on shopping,” despite the fact that three of the last four months of US weather has been above the seasonal norms, or blaming the collapse in Oil prices and its effect on exports, which surely is more than off-set by higher disposable income in a country where 70% of economic growth is reliant on consumption.

So what’s caused the slump?

At its simplest, debt levels, which act as a drag-anchor on economic activity, as can be seen below:

 29 April 2015 Blog 1

The red-line is the US statuary debt limit, which at $18,000,000,000,000 only represents a part of total US debt, but it does show the inverse correlation against US GDP, represented by the blue and red histogram bars. Lower debt levels in the 1960s, the golden era of economic growth, were followed by ever-increasing debt of all stripes, personal, corporate and government and despite the zero-interest rate environment of the past few years, increased debt has suffocated economic activity and also pushed the US into the “negative-inflation club!

So, there is no inflation relief on debt servicing, which is what policy-makers said QE and stimulus was all about, whilst increased market interest rates, which commenced three years ago, will crush economic activity further and not just within the US.

As stated within the February 2015 post,” Deflation Denial:”

 

Those who cannot remember the past are condemned to repeat it.”

 

 

 

 

 

 

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