Debt Addiction Strangles GDP Growth

Debt Addiction Strangles GDP Growth

The “spend at all cost” fiscal policy of the past number of decades subsidized by dovish monetary policy has led to decades of anemic Real GDP growth. It’s about to get worse. Our expectation is that the new “normal” for Real GDP will be zero percent over the next decade. Thank the genius triumvirate of the untouchable Congress, the out-of-touch Oval Office and the feckless Federal Reserve.

To say the U.S. can’t consistently grow Real GDP above 5% given the enormous size of the U.S. economy is hogwash. Overregulation, burdensome tax policy and prolific welfare act as a wet blanket to productivity. The two below charts are embarrassing.

Federal Debt Grows Faster Than Real GDP. For Federal Debt growth to consistently outpace Real GDP growth should have every American up in arms.

Source: St. Louis Federal Reserve; Y-O-Y percentage change in Real GDP (blue line) vs. Y-O-Y percentage change in Federal Debt (red line).

Federal Debt Is Larger Than GDP. For Federal Debt to exceed GDP is criminal. There ought to be a Constitutional amendment prohibiting this perverse reality. Federal Debt is approximately 125% of GDP.

Source: St. Louis Federal Reserve; Federal Debt as a percentage of GDP.

Given that Federal Debt has reached new heights we expect for Real GDP to reach new lows. This does not mean that Real GDP will be consistently negative. However, where 2-3% GDP growth was considered “normal”, we expect for Real GDP to average zero over the next decade. “Normal” is about to become increasingly anemic.