recognise the chart below?
This is a chart of real (inflation-adjusted) U.S. GDP over the past 60 years or so. Basically, it’s a measure of our economic output.
Looks pretty good, right?
Now check out this chart.
This is a chart of the debt America has accumulated over the past 60 years or so (and especially over the past 30). It includes three big kinds of debt: Household debt (consumers), corporate debt, and government debt.
The chart also shows the growth of GDP–the same line as in the chart above (except this time not adjusted for inflation).
See if you can guess which line is which:
The red line is the economy, right?
The goal of borrowing money, after all, is to accelerate growth. You use the borrowed money as extra fuel, and that accelerates the growth of your business (in this case, the American economy).
So, the blue line is the money we borrowed…and the red line is the economic growth is it produced?
In the chart above, the red line is the debt. The blue line is the economy.
Yes, over the past 30 years, we’ve generated about $1 of economic growth for every $3 we’ve borrowed.
It’s also frightening.
Now, there’s some double-counting in there–if I borrow $100 from a friend and then I lend the $100 to you, those two $100 loans add up to $200 of “total debt,” but it’s really only $100 that has been borrowed.
Just for fun, here’s what our economic growth looks like if you subtract the debt we’ve borrowed along the way.
Yes, it’s a very big negative number:
As many sharp readers noted below, I’m really comparing apples and oranges here–a balance-sheet item (debt) with an income statement item (revenue). That’s why I said “just for fun” above.
But here’s another way to look at it.
The change in debt subtracted from the change in the economy each year. This chart shows that, on balance, we have had to borrow more and more each year to produce the same level of economic growth:
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