Yesterday we likened the economy to an overswollen tick, obese with blood.
Rather than blood, the economy is obese with debt.
Like our ludicrously engorged arachnid, the economy cannot much expand. It is impossibly loaded down… and groans under the burden, horribly swaybacked.
The economy will continue to wallow — unless it can shake off the weight.
But how can it?
Today we blow the dust off an ancient solution… and polish it up for the 21st century.
It may flabbergast and stagger you. You may laugh it out of court.
But it may offer the only way out. What is it?
The answer momentarily. We first check on another preposterously inflated behemoth — the stock market.
The bears won the day on majority decision…
The Dow Jones lost 28 points on the day. The S&P slipped a single point. The Nasdaq, meantime, scratched out a four-point gain today.
In all, a quiet an uneventful December day.
But how can the economy unload the gargantuan debt load that saddles it, hagrides it and torments it?
We must first come to terms with the facts…
Not Much Bang for the Buck
The United States government has since borrowed some $13 trillion since the financial crisis.
These borrowings have hoisted the United States national debt above $23 trillion.
Yet the American economy expanded only $5.1 trillion these past 10 years.
That is, while GDP has expanded less than 40%… the national debt has increased over 120%.
Parallel the past decade to the locust years of the Great Depression…
Real GDP 1929–1940 expanded at a cumulative 19.89% rate.
But for the past 11 years, cumulative GDP expanded 18.85%.
That is, the economy of the Great Depression — cumulatively — outperformed today’s.
And consider:
Average real annual economic growth since 2009 runs to 2.23%. But the larger trend since 1980 is 3.22%.
The Cost of Lossed Growth
One percentage point may seem a trifle. And one year to the next it is.
But Jim Rickards calculates the United States would be $4 trillion richer today — had the 3.22% trend held this decade.
Run it out 30, 50, 60 years… and Jim concludes the nation would be twice as rich over a lifetime.
Here you have a grim lesson in the meaning of negative compounding interest.
Meantime, the Congressional Budget Office (CBO) projects economic growth to limp along at an average 1.9% per annum 10 years out.
That 1.9% stands against the 3.22% rate common until the great gale of 2008 blew on through.
More debt… less growth.
And so the Keynesian “multiplier” has taken up division.
A “Scoundrel Economics”
Here is the deeper lesson:
Debt-based consumption steals from the future to gratify the present. It brings tomorrow’s consumption forward to today — and leaves the future empty.
We have borrowed from the future so heavily and so long… we are writing checks against a failing bank.
It is a juvenile economics, a wastrel economics, a deadbeat economics — a scoundrel economics.
“The wicked borrows, and cannot pay back”… as Psalm 37:21 informs us.
Meantime, federal debt presently rises three times the rate of revenue coming in. And trillion-dollar deficits gape to the farthest horizon.
CBO projects annual deficits 10 years out will average $1.2 trillion.
Allow for the inevitable smash-up recession. Deficits could double… or possibly triple.
As is, debt service alone could rise to $915 billion by 2028 — nearly 25% of the entire budget.
For the long-term sufferings we turn to the Brookings Institute:
Sustained federal deficits and rising federal debt, used to finance consumption or transfer payments, will crowd out future investment; reduce prospects for economic growth; make it more difficult to conduct routine policy, address major new priorities or deal with the next recession or emergencies; and impose substantial burdens on future generations.
$210 Trillion in Debt?
And we have failed to mention “unfunded liabilities.”
Future Social Security, Medicare and Medicaid obligations are not fully tallied in official number crunching.
Work them in… and America’s true debt may rise to an obscene $210 trillion.
“The pen shrinks to write, the heart sickens to conceive” the enormity of the coming migraine.
Such obscene debt obligation cannot possibly be met. And debts that cannot be paid… will not be paid.
We cannot “grow” our way out of it.
Meantime, America labors under record student loan debt, credit card debt, auto debt, mortgage debt, corporate and state and local government debt.
Again we ask: Is there a way out? Can the economy unload its impossible cargo of debt?
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