Sunday, September 18, 2011

Real Total Debt vs Real GDP


Click to enlarge.

Ouch.

Source Data:
St. Louis Fed: Total Credit Market Debt Owed
St. Louis Fed: GDP
St. Louis Fed: CPI

13 comments:

Stagflationary Mark said...

Look closely at the long-term trend in real GDP growth in the chart within this post.

Now read what Siegel wrote in February.

February 2, 2011
More Dangerous Advice from Jeremy Siegel

These healthy rates were not a surprise, since economic theory predicted that real yields should approximate real gross domestic product growth, which averaged between 3 per cent and 4 per cent at that time. - Siegel

I believe that. Now consider what I wrote.

He didn't seem to have any problems with long-term TIPS paying a real yield of 3% to 4% when real GDP growth was 3% to 4%. In fact, that was the very math he used. So why is it so hard for him to understand that earning a real yield of 2% when real GDP growth has been 2% might not be such a bad thing?

I have a theory. Treasury Inflation Protected Securities tried to run over Jeremy Siegel's dog. What else could possibly explain his ongoing hatred of them? Well, other than the fact they've made him look like a fool for the past decade by outperforming his precious stocks.


I continue to believe that Jeremy Siegel offers dangerous advice. I think he's trapped. In order to admit that TIPS were not in a bubble back in February he'd have to admit that his "Stocks for the Long Run" book was a joke.

Stocks for the Long Run

If anyone told you that investing in the stock market was the safest investment you could make, you might raise an eyebrow. However, if Jeremy Siegel tells you this, prepare to be convinced.

Nope. Not convinced.

Stagflationary Mark said...

Bonus thought.

Long-term TIPS are nearly a pure bet on the downward trend in the red trend line. That's why I like them.

This is not an inflation/deflation bet to me (although I do like the partial inflation protection that TIPS provide).

I'm not sure where I stand on the black trend line. It is unsustainable. Should it actually fall at some point then I would expect the red trend line to fall even more though. (It is the trend in the black line that is propping up the trend in the red line.)

I do not see a scenario where the red trend line rises over the long-term. We've dug our hole too deep. That's why I like TIPS over the long-term.

Anonymous said...

The following link will take you to a total debt chart of the USA versus its gdp over the last 60 years. (The chart is 18 months old)

http://market-ticker.denninger.net/uploads/2010/Mar/debt-to-gdp.png

Troy said...

http://research.stlouisfed.org/fred2/graph/?g=2eI for a more recent version.

But as Commander Mark opined, it's the debt take-on that's giving us much of this GDP in the first place.

I don't really know where we go from here.

I don't understand the mid-90s turnaround so I don't understand the economy all that well -- whatever kicked in in the mid-90s may or may not kick in now.

But I do think we're in a lot weaker situation now compared to 20 years ago.

We had less military mal-investment (I think). The baby boom was twenty years younger.

Productivity and retail efficiency were getting going with computerization, globalization, and the offshoring of our supply chain to China.

The first 15 years of that was a net positive, but now we've got to deal with the follow-on effects of globalization.

The core problem now is the working class has debt and the upper class holds all the wealth.

5% of the country is collecting 33% of the income. Of course this is unsustainable.

Stagflationary Mark said...

Anonymous,

I've done similar charts here. Thanks for sharing that.

Stagflationary Mark said...

Troy,

I agree with you yet again.

Stagflationary Mark said...

I'm expanding on this post in my next one. I'm bringing civilian employment into the picture. It will be up shortly.

Anonymous said...

Thanks for the updated chart Troy.

getyourselfconnected said...

Awesome!

Audrey said...

Fascinating!

Stagflationary Mark said...

The next one's a doozy!

Be afraid. Be very afraid.

The Arthurian said...

Mark and Troy --

I expand on your post & comments here:

http://newarthurianeconomics.blogspot.com/2011/09/scenario-for-mark.html

Art

Stagflationary Mark said...

The Arthurian,

I commented on your post. For the most part, I agree with you.