Final Jeopardy: GDP & Debt
The Nattering Naybob Chronicles
May 04, 2005
naybob.blogspot.com
A reader asks what is the percentage of total debt to GDP?
Income: 2004 U.S. GDP est. $12 Trillion.
Following numbers for 2004 unless noted and these numbers are at all time highs:
Trade or Current Account Deficit: $60 Billion per month; $700-680 Billion annual
As of last week, total Fed Foreign Holdings of Treasury, Agency Debt $1.390 Trillion.
GOVERNMENT Debt est. $16.3 Trillion comprised of:
Federal Debt est. $7.6 Trillion with interest only payments of $2.2 Billion per day.
State and Local Debt est. $1.7 Trillion
Unfunded Social Security est $7 Trillion
PRIVATE DEBT est. $30 Trillion comprised of:
Total household real estate market valuation to GDP ratio 140% of GDP. The last % high was 1989, and we know what happened then.
Total household debt $10.3 Trillion, up 56.8% in the last four years. Ratio to "CURRENT" valuation 60%. In other words a loan to value ratio of 60%.
Total business sector debt $7.8 Trillion.
Total financial sector debt $11.4 Trillion.
Total aftertax corporate profits as a percentage of GDP; historically between 4% and 6.5%; last year = 7.92%. It is rare for this number to exceed 6.5%, the last time it was this high, 1929 and we know what happened then.
Total market cap to GDP ratio; historical median of roughly 0.56; last year 140% of GDP. The last time this occured was in 2000, and we know what happened then.
Debt Acceleration and decreasing GDP:
1970's $1 increase in GDP = $1.75 increase in debt.
1990’s + $1 GDP = $3.64 increase in debt.
2000's + $1 GDP = $7.11 (through end of 2003)
When you compare debt to the self sustaining productive portion of GDP (manufacturing, construction, agriculture, mining, transportation etc.): The ratio is + $1 GDP = $63 debt.
The increase in debt to GDP ratio indicates that today, more debt is required to increase GDP as compared to years past. This erosion is a clear indication of an economy built on asset based lending, speculation and debt creation (MONEY SHUFFLING). The logical conclusion is that the debt can NEVER be paid off out of the productive portion of the economy.
The Answer:
Total Debt = est. $46 Trillion, up 30% in the last 3 years.
Caveat: The unfunded SS & Medicare situation is dubious to say the least. There are a known $1.5 Trillion in worthless IOU's the government has written to the trusts.
I have used the $7 Trillion SS figure from a Fortune article titled “The $44 Trillion Abyss”, authored by Boston University Professor Larry Kotlikoff.
According to the professor, the government doesn't really know what it owes and his calculations estimate $7 Trillion SS and $37 Trillion Medicare. Prof. Kotlikoff refers to America’s massive underfunded entitlement liabilities as ”the great Treasury cover-up.”
If you add unfunded medicare obligations of $37 Trillion Total Debt = $83 Trillion.
Final Jeopardy answer: 383% w/o Medi or 691% all told.
More to come on the 'morrow, in "You Have to Admit It's Getting Better". |
