[quote=livinincali][quote=davelj]
Yes, debt has been growing at a much faster rate than GDP, so we know that it has had a positive impact on GDP (in the past). Now we’re at the point where debt is so large that it has a negative impact on GDP (too much to service). We have too much debt – there’s no question about that. But… you’re dramatically overstating your case when you suggest that there hasn’t been ANY economic growth ex-debt over the last 30 years; this is empirically incorrect. In fact, there’s been a bit of research done on this subject and most of it concludes that about 50-100 bps of annual GDP growth over the last 30 years has been the result of incremental debt.[/quote]
Fair enough. If you take on a trillion dollars of debt to produce 300 billion of annual production it theoretically does end up producing a positive return at some point. It’s just difficult to see it when you keep increasing debt every year in excessive of the incremental productivity increases. I suppose in our system we should measure yearly servicing cost versus the GDP growth. I.e. 1.2 trillion @ 4% is right around 70 billion in servicing costs for 30 years. We get about 280 billion in what we assume is permanent growth from that debt.
Certainly in a world with a growing population and growing energy usage there is growth. It’s just that we chose to measure it something that has a variable meaning. A dollar today in terms of productive output is different than a dollar 2 years ago.[/quote]
I’d have to really think about how to measure the utility of each incremental dollar of debt. That’s probably not an easy thing to do because the cost of capital issue looms large and is difficult to quantify. I think we have too much debt and it seems self-evident because if you normalized interest rates, debt service would be a huge issue. But so long as rates remain low, to paraphrase Chuck Prince, “Everyone keeps dancing.”
