Zerohedge put out the above chart today showing the Q4 increase in debt versus the “growth” generated from it. Lo and behold… $312 billion of extra and incremental borrowings created a NEGATIVE $5 billion worth of growth. GDP was reported as negative in the last quarter at -.1% (U.S. Economy Unexpectedly Contracts in Fourth Quarter). But but but… how can that be?
Let me put this in perspective for you. This $312 billion of “extra debt” taken on was actually “used.” Whether you believe that it was used “well” or not is in the eyes of the beholder and can be debated at another time. For now, just know and understand that it was “spent”, ALL of it was “spent.” And as it was “spent” it was accounted for as a part of GDP. Whether it went out in SNAP cards, or free phones or to pay for bridges and roads to be built or repaired does not matter. What does matter is that over 3 months it was spent and was part of “overall activity.”
Now let’s do a little back of the napkin math. The US GDP is roughly $15 trillion (I know, it’s $16 T but stay with me), we “spent” some $300 extra billion over 3 months which annually comes out to $1.2 trillion. This “magical” $1.2 trillion is equal to roughly 8% of GDP (total economic activity). So… one might logically ask “What if the government had not borrowed and spent $300 billion over and above what they had without borrowing?” See where this is going? The economy would have had $300 billion less “juice” to it ($1.2 trillion over the course of a year) and the report would have revealed an economy CONTRACTING at over an 8% clip. This would be considered a DEPRESSION rivalling the 1930′s… and yet we are being told daily that these are “better” times?
Read More at Miles Franklin . By Bill Holter.