[quote=davelj]
Well, not exactly. Roughly 1/3 of the annual growth over the last 30 years has been a result of debt accumulation. The problem, of course, is that if you keep building up debt at small incremental rates over a long period of time – say three decades – you eventually find yourself over-leveraged. As Dickens pointed out, “Annual income £20, annual expenditure £19 and six pence, result happiness. Annual income £20, annual expenditure 20 and six pence, result misery.”
It’s not that all of the growth has been fantasy… it’s just that a very small part of it has been fantasy over a long period of time such that now the cost of servicing that fantasy (resulting from prior debt) is (finally) dragging down our ability to grow.[/quote]
Maybe I’m just arguing semantics, or maybe we’re looking at different data sources but this is what I see. In 1980 the total outstanding debt was right around 5 trillion dollars, this includes public and private debt (Look up the Fed z1 for 1980). That total is now right around 55 trillion. Essentially > 10 fold increase in total debt.
The nominal GDP in 1980 was 2.788 trillion. Today’s it’s around 14.5 trillion. So the economy grew about 5 times in that same period. What I don’t see is any real GDP growth in excessive of debt. In essence we don’t have any example of total debt producing a positive return on investment as a whole. Certainly there are successful businesses that took on debt and produced a real rate of return, but in aggregate there’s been more failures than successes.
If there was real growth in excess of debt then we should be looking at an economy where GDP is well over 30 trillion.