The growth of federal debt has been out of control for decades. The solution that’s commonly offered for reeling this back is for the economy to somehow grow its way out of the debt. This has yet to transpire despite a variety of policies over the years that have generally involved borrowing money from the future and spending it today.
The simple fact is you can’t grow your way out of debt when the debt’s increasing faster than gross domestic product (GDP). For example, in 2000 the federal debt was about $5.6 trillion and real U.S. GDP was about $12.5 trillion. Today the federal debt is over $20.6 trillion and real U.S. GDP is about $17 trillion.
In just 18 years the federal debt has increased by over 265 percent while real U.S. GDP has increased just 36 percent. This, by all practical means, is the opposite of an economy that’s growing its way out of debt.
Mind the gap: total US credit market debt, gross US public debt and GDP. In the 1980s total debt outstanding crossed above total annual economic output, in 2011 public debt did likewise. Once upon a time, a fairly small amount of debt was supported by a much larger amount of economic output – nowadays a vertigo-inducing hyper-pile of debt is supported by economic output that represents a small and continuously shrinking fraction of it. It seems glaringly obvious that something will eventually have to break – if a trend cannot continue forever, it will necessarily stop and reverse at some point. In 2008 we witnessed a microscopically tiny interruption in the perennial growth of the debtberg generating economic upheaval on a scale that provoked comparisons with the darkest era in US economic history. Obviously, the above chart doesn’t inspire much confidence. It indicates that our vaunted central planners will eventually feel compelled to truly print the currency into oblivion, as it seems highly unlikely that they are ready and willing to stomach the alternative.
jfi -
