Below is a chart from Casey Research’s website. If ever a chart detailed the Rise and Fall of an Empire, this is the chart. Back in the 1950s and 1960s debt was used for investment. People would borrow 80% or less to buy a house. Businesses would borrow to buy equipment to expand their operations. These were productive uses of debt. As the decades flew buy, mega companies borrowed in order to buy back their stock, pay out ginormous bonuses to its executives, and acquire other businesses at inflated prices in order to fire thousands of workers and off-shore the operations. Bankers convinced Americans they could put nothing down on a house and reap the rewards of ever increasing home prices. We know how that worked out. Americans converted from savers to consumers. They think they are wealthy because they drive new $40,000 SUVs, have the latest 52 inch HDTV, granite counter tops, and stainless steel appliances. They borrowed all the money to purchase these doo-dads. They are now slaves to the banks.
This chart proves we are on a path to destruction. Every dollar of debt taken on since late 2009 results in lower GDP. We are in the midst of debt trap and we won’t be able to get out. The good news is that American Idol is on at 8:00 tonight. I wonder who will be eliminated from Dancing with the Stars.
This is a very simple chart. It takes the change in GDP and divides it by the change in Debt. What it shows is how much productivity is gained by infusing $1 of debt into our debt backed money system.
Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.
Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!