Tuesday, 12 June 2018

QotD: "The world has so much debt that the cracks could happen anywhere... "

"The world has so much debt that the cracks could happen anywhere... If debt were a drug, we would outlaw it. But we also know that people get hooked on illegal drugs all the time... [So we have too much] debt and (not much) deleveraging."~ John Mauldin, who says the Debt Clock is Ticking

"Any economist can paint a rosy picture by, for example, showing rising GDP. If you object that debt is rising with GDP, the economist switches to a chart of debt/GDP. He will tell you that the solution is to grow GDP with the right fiscal and regulatory policies.
    "However, we can look at how much additional GDP is added for each newly-borrowed dollar. This is called marginal productivity of debt. This [below] shows a clear picture, a secular decline over many decades... this is a long-term falling trend."

~ Keith Weiner on the Falling Productivity of Debt



  1. I see.so this graph means debt is a little bit bad, not so good. and 25 trillion dollars of debt probably not too good at all.

    1. The graph shows the effect of private debt on economic growth, confirming that since the war (in contradiction to prevailing economic models) one dollar of debt produces less than one dollar of economic growth. And that effect has been steadily declining.
      In other words, the whole economic model is unsustainable.

  2. While the trend is obvious,I'm intrigued by some of those outliers...

    I wonder what exactly happened in (for example) 1954 and 2011?

    1. I'm guessing recovery from the 1953 recession, and the 2008 GFC. Projects put on hold due to lack of funding take off disproportionally, at least for a short period when the tap gets turned back on.


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