Diminishing Public Debt Returns

Diminishing Public Debt Returns

Washington politicians, Treasury officials and Federal Reserve bankers ought to think twice about further leveraging the U.S. Economy. Bailouts and Government subsidies are not the solution to building a robust free market economy (nor to winning elections).

What do we have to show for the massive debt issuance that takes place each year?

  • Moral hazard (corporate and personal);
  • A growing welfare class;
  • Thousands of zombie companies;
  • Low productivity;
  • A suffocating debt load;
  • Inflated prices

Think of the charts below as a Return on Invested Capital measure. Specifically, the annual change in Nominal GDP divided by the annual change in Public Debt outstanding. In other words, the change in GDP (i.e. productivity) as a result of every Dollar of Public Debt issued.

  • We measured Nominal GDP and Public Debt at year-end using end of period values.
  • The first chart divides the change in Nominal GDP in a given year by the change in Public Debt for the same year.
  • The second chart operates using a 1 year lag, meaning the change in Nominal GDP is divided by the change in Public Debt from the preceding year.
  • A quick glance at either chart shows diminishing returns for every dollar of Public Debt issued. Returns are essentially bouncing around the zero mark.
  • Reach us at info@tek2day.com to receive a copy of our Excel file including charts.