Wednesday, July 18, 2012

Federal Debt vs. GDP

Click to enlarge.

Let's put that same data on a scatter chart and throw in some trend lines.

Click to enlarge.

Note that the slope of the red trend line is only half as steep as the "more prosperous" blue trend line. The bad news doesn't end there.

Click to enlarge.

Note the exponential trend failure in civilian employment. I would bet all that I own that we will NEVER return to that red trend line. I'd even offer you 100-1 odds to boost your potential return. Leverage up!

In summary, it is taking increasing levels of federal debt per civilian employed to get the same level of GDP growth per civilian employed. Meanwhile, civilian employment is not growing like it once was. Not even close.

November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here

First, as you know, Japan's economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of the monetary policies that have been tried in Japan, even as the heavy overhang of government debt has made Japanese policymakers more reluctant to use aggressive fiscal policies (for evidence see, for example, Posen, 1998). Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan.

For those who believe that the US doesn't share these problems, I have some exceptional ocean front property in Kansas I would like to sell.

Source Data:
Federal Debt vs. GDP
St. Louis Fed: Federal Debt vs. GDP (Scatter)
St. Louis Fed: Civilian Employment

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