U.S. Debt Ceiling To Be Increased At The Start Of 2013

by: Katchum

Everyone is saying how great the United States is growing with a positive purchasing manager index and positive GDP. But the fact is that U.S. public debt is growing much faster than GDP. But this happened only just recently.

Before 2008 (the economical crisis), debt was increasing at a slower pace than GDP. The slope at which debt rose was moderate. Notable is that for each unit increase of debt, we got more than one unit increase in GDP.

After 2008, the total public debt slope suddenly increased (Chart 1) and hasn't slowed down. Interestingly, this period after 2008 marked a completely different era for U.S. debt. In contrast to the previous era before 2008, this new era had one fundamental change. For each unit increase of debt, we got less than one unit increase in GDP. This actually means that the GDP of the United States is phony, because GDP can't be real if the debt grows more than GDP.

This year also marks another era. For the first time, U.S. total debt has outpaced U.S. GDP in 2012. In 2002, U.S. debt was 6 trillion USD, while GDP was 10.6 trillion USD. Today, U.S. debt is 15.7 trillion USD, while GDP is 15.462 trillion USD. So basically, U.S. debt has crossed the GDP number at the inflection point of around 15.4 trillion USD. Hence a debt-to-GDP ratio of over 100%.

It's funny how the debt ceiling is affected by this. Before 2008, the debt ceiling has been increasing in the order of less than 1 trillion USD (see red lines in Chart 1). After 2008, the debt ceiling has been increasing in the order of 2 trillion USD and more. By 2013, the debt ceiling will have to be increased again and I believe the order of increase will likely get bigger and bigger, until we get to hyperinflationary numbers.

Maybe then, the spotlights will be focused back on the United States instead of Europe.

Chart 1: U.S. Total Public Debt VS. U.S. Debt Ceiling

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.