Let’s say I had a huge credit card debt limit and just started using it to live the high life. Bought a new car, threw lavish parties, all that. Could I really pass myself of as a successful professional earning a living? Sure I could. Donald Trump definitely does. But how about the United States?
Our official annualized GDP growth was 1.9% last quarter. Most people would say that was low but OK. But is it? What if we are only generating the appearance of growth just like someone spending off their credit card?
A lot of eyebrows have been raised about the absolute level of the national debt ($23 trillion) and federal deficit (>$1 trillion) but it’s the rate of growth (~7% and ~10% respectively if my math is right) that interests me because it puts GDP growth in perspective, remembering that projected GDP is around $21 trillion. But, wait, there's more. Take a look at US consumer debt at $14 trillion and then at U.S. non-financial corporate debt of large companies at about $10 trillion dollars, 48% of GDP. In fact, according to this Forbes article:
Total corporate debt is actually much higher. Adding the debt of small medium sized enterprises, family businesses, and other business which are not listed in stock exchanges ads another $5.5 trillion. In other words, total US corporate debt is $15.5 trillion, 74% of US GDP.
What emerges is a picture of a country drowning in debt and an economy that isn’t just a Potemkin village. It’s Potemkin-land. This, of course, isn’t just a US problem. Add up the national debts of all countries with more than $1 trillion in national debt and you come in at about $65 trillion or about 80% of world GDP. This is a pretty alarming picture to me. I am not an economist. Maybe someone with actual credentials can explain why I shouldn’t be worried about this mounting debt.