Monday, November 19, 2012

I love the internet

My morning mosey turned up a guest post by Zero Hedge at SilverIsTheNew. Or maybe it's a guest post by SilverIsTheNew at ZeroHedge. Can't say.

Several very beautiful graphs. Some English that torques me. (He writes: "In the US, literally nobody purchases a car with money form a savings account." I think he means that virtually nobody purchases a car with money from a savings account. Reminds me of Penny's boyfriend Zac (who also didn't know what "literally" means) getting beat on by Sheldon Cooper and the boys, in the episode that drew me in to Big Bang Theory.

Everybody makes mistakes, especially me. But don't people proof-read their stuff?)

Yeah, I love being frustrated by bad English literally virtually almost as much as I love looking at pretty graphs  pretty girls both.

Never mind. Here, deserving a better introduction than I can muster, is the last graph and the accompanying text from the ZeroHedge/SilverIs post:
Has debt-to-GDP, or the debt-bearing capability of the US economy, hit a ceiling?

Look at how little additional GDP (blue area, below) we obtained in comparison to ever increasing amounts of additional debt (red area):

The dotted black line is the marginal utility of debt (right-hand scale). Think of it like this: how much additional GDP do you get out of one dollar of additional debt (in %). In 1992, for example, you get $0.30 in additional GDP for every additional dollar of debt.

Problem: this marginal utility of debt has trended lower and lower over the years, and actually reached zero in 2009.

Meaning: you can add as much debt as you want, and it still won’t give you any additional GDP.

To repeat: no amount of additional debt seems to be able to get economic growth going again.

That is a dramatic revelation. We might have reached the maximum debt-bearing capability of the economy. If true, no growth is possible unless debt-to-GDP levels fell back to sustainable levels (in order to restart the debt cycle). This could take years.

At this point, the only way to reset the debt cycle is to get rid of debt.
// Related post: The Elusive Growth. (Move your mouse on-and-off the graph.)


Greg said...

Yes but he probably means govt debt and not private debt.

It is true that private debt can hit a limit. One can never have debt payments greater than the income they bring in (one can restructure private debt so it is a lower percentage of income for a longer period of time .... which is actually MORE expensive but.......)

Govt debt really has no physical limit.

The Arthurian said...

Hi Greg. The guy's other graphs show total credit market debt owed, TCMDO. I find somebody every once in a while who is concerned about something other than government debt!!