More on the flow of funds and the debt impact on the economy
By Peter Boockvar - September 17th, 2009, 1:08PM
To elaborate further on my previous note on the Fed’s Flow of Funds statement and to illustrate the impact of debt on our economy, over the past 10 years total US debt (households, business, government at all levels and domestic financial institutions) has basically doubled from $24.6t at the end of 1999 to $50.9t as of Q2 2009. Nominal GDP has gone from $9.6t to $14.1t over the same time frame, a rise of 47%. Thus in the credit driven economy that we’ve seen over the past 10 years, it has taken more and more debt to generate $1 of GDP growth.
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September 17th, 2009 at 2:27 pm
Peter, not too worry. I posted this before but there are those now who think we are underindebted.
http://finance.yahoo.com/tech-ticker/article/334648/Too-Much-Debt–Please.–We-Need-MORE-Debt-Says-Ken-Fisher?tickers=tlt,tbt,spy,dia,%5Egspc,udn,uup
Too Much Debt? Please. We Need MORE Debt, Says Ken Fisher
….I can hardly wait!
September 17th, 2009 at 2:44 pm
This is not going to end well, is it? The longer we put off the deleveraging, the more painful it will be.
September 17th, 2009 at 4:33 pm
Is this a fair estimate of US total assets?
http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/
September 17th, 2009 at 7:42 pm
There is a fundamental and very important difference between federal debt and all other debt: The federal government cannot go bankrupt. It never has any difficulty servicing it debts, no matter how large. No other debtor is in that position. So while there can be legitimate concerns about non-federal debt, the same concerns cannot exist for federal debt.
In this sense, Ken Fisher is right about our having too little debt. Currently, the economy is starved for money and money is debt. So the economy is starved for debt. The cure is not to urge consumers to load up on their credit cards, but rather to encourage the federal government to increase its deficit spending.
Rodger Malcolm Mitchell
September 18th, 2009 at 9:18 am
@tagyoureit: Nice article. Related to that, I saw this last year:
“At today’s prices the value of oil in the ground exceeds the combined value of all the world’s equity and debt markets.”
“Oil-importing nations are paying oil-exporting nations roughly $1,500bn per annum for oil – about 2.5 per cent of global gross domestic product – by some measures the biggest income transfer in history. These two statistics highlight the scale of the oil bonanza even after the recent retreat in prices, and its potential to influence both global economic activity and asset prices worldwide.”
“This presents two fundamental macroeconomic challenges. The first is to sustain global demand at levels consistent with full employment. Exporting countries tend to spend less and save more than importing countries, so a transfer of income from consumer to producer depresses global demand. The second is to find ways to enable oil producers to transform their resource wealth into financial and real assets on a gigantic scale.”
“This is much more difficult than it might sound. Of course no-one knows what the long-run price will be, but at current prices the value of oil in the ground is $162,000bn (€107,659bn, £84,401bn) – more than the total value of all equity markets ($52,300bn) plus all debt markets ($67,000bn.)”
“Indeed it almost exactly equals the total value of all tradeable financial assets, which the McKinsey Global Institute estimated was $167,000bn at the end of 2006.”
- (FT.com via Google to bypass login) http://www.google.com/url?sa=t&source=web&ct=res&cd=1&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F49b6ff0c-673a-11dd-808f-0000779fd18c.html&ei=ujezSvq1GuSutgfFweywDQ&usg=AFQjCNGpNm1zjzqH_jx90e5x-M7xtLtySQ&sig2=0mZ9oumUhNRuwzipxzswlA
September 18th, 2009 at 10:38 am
Those who claim sovereign debt is superior to private debt forget: 1) every nation including the USA has defaulted on its debts at one time or another (this means the USA can, and may, though not must) and called its currency in (the US defaulted on debts of the Confederation of States – remember ‘not worth a Continental’) 2) US and UK banks lost tons of money on loans to Central and South America nations in the ’70s (they were given special regulatory permission to write off the bad loans over a period of years, rather than all at once, which would have destroyed their capital and put them technically out of the banking business), 3) every nation including the USA has devalued its currency (FDR prohibited private ownership of gold, and then devalued the dollar) and, in doing so, raised the cost of imports to consumer and lowered their domestic purchasing power and repaid sovereign US debt in ‘cheaper’ dollars. Those who seek refuge in gold fail to recognize the US can once again ruin their plans, forcing them to sell, as FDR did in the ’30s.
September 20th, 2009 at 4:58 am
In order to bring down unemployment we need a 3% growth in GDP, It takes $6 of debt to generate $1 of GDP growth. The GDP is 14 trillion dollars, so we need to create 3 trillion of debt/year. Banks are loaning less and reserve requirements are going to be raised and that will further decrease bank lending. Consumers are paying down debt and an aging population will borrow less. The government will have to fill the gap. If the money is spent on upgrading our infrastructure it will create jobs, if it is given as stimulus to individuals, it will go into savings or to paying down debt.