Ok guys, in a hurry here. I know its been posted multiple times and there is even an updated graph, but I searched to no avail. This is the graph that shows the enormous peak at the great depression, we bottom out in the 40's, and now we are above the great depression. Help a fellow TF'er out? :)

http://market-ticker.org/archives/673-Ar....

Is it this one?

gracias.

I'm assuming that includes consumer debt (?) Government debt is around 65% of GDP and has consistently been so since the 1990's. The chart really needs to say "consumer" somewhere.

http://www.whitehouse.gov/omb/budget/fy2....

Edit:

It also needs to say "mortgage debt". That chart is very misleading.

Another useful chart would be government debt versus government income (taxes, tariffs, land lease, sales, etc).

scotty, its' not misleading. It takes Page 8 from the Fed Z1 report. It's a measure of leverage.

The debt servicing cost is more important than the size of the debt.

quote [It also needs to say "mortgage debt". That chart is very misleading.]

Scotty it is not misleading. The consumer is the "engine" of the economy. Showing how much leverage he/she is carrying is a good indicator of whether we have a depression (crash in spending) and how severe it is going to be. The total debt:GDP is one of the few stats the government cannot just wave a magic wand to.

Scottyb wrote..

That chart is very misleading.

The current figure might actually be understated by a bit, since the economy is slowing, GDP is falling, and that 360% is probably quite a bit higher right now. Tough to say though, since debt is also being destroyed and defaulted on.

Here's the original source of that chart,

http://www.hoisingtonmgt.com/pdf/HIM2008....

at 360% of GDP and 5% debt servicing costs...

18% of GDP is just paying the interest.

Quote:

The debt servicing cost is more important than the size of the debt.

Yep, just like option-arms.

Etz31, thanks I'll read through the whole report.

When people think of debt, they usually think of the U.S. Federal Government Debt. If you told some random person that our nation has a collective $30 Trillion dollar debt, technically you may be right, and they would probably be shocked, but I think you would be misleading them, because you cannot automatically assume that all of the debt is unserviceable or "bad". In addition, other people own the debt and they will collect fees on the debt... it is not money being thrown down a hole. Well, except for the GSE issues.

As far as leverage:

"Typical" Person:
Mortgage Debt: $100,000... Income: $33,000/year...Ratio 3:1

"A-typical" Person:
Mortgage Debt: $300,000... Income: $100,000/year...Ratio 3:1

Nation:
Total Debt: $30T... Income (aka GDP): $10T/year... Ratio 3:1

Is this debt/income ratio unserviceable? The above examples are not perfect, but we are not looking at a 20:1. I'd also love to see how other countries compare to our ratio.

Edit: Also, one other point... as far as I know, GDP does not include government tax receipts, but the "Total Debt" in the above chart does include government debt. So this skews the number... if government tax receipts were added to GDP, the ratio would come down to approx. 200% or 2:1. Basically, the government side of the nation's financial health needs to be separated from the private side. This is what I don't like about that chart... also, GDP is an amalgam of different factors and may not be the best denominator. You really need to break out the income and debt for each entity - public, private, corporate, family - to make a judgment on whether or not something profoundly "bad" is happening.

Is it ok to renegotiate with the Treasury holders that we go interest-only for a while and balloon at the end?

Riceball wrote..

Is it ok to renegotiate with the Treasury holders that we go interest-only for a while and balloon at the end?

You mean balloon, like explosive balloons ? I'm sure the Treasury buyers would like that.. we could just tell them that T's always go up and we will pay that balloon with the massive capital gains.

Curious as to why even though we are at much higher debt levels these days that in the 1915-1932 period it appears there were more recessions (gray areas) than expansion.

i.e. something is missing

Another great chart to supplement the one above to complete the picture is the chart showing GDP growth per incremental dollar of debt. KD posted a while ago. It was rapidly approaching zero back then, in fact given how much debt has been issued since that chart was highlighted, we're probably already in zero to negative GDP growth per additional dollar of debt. This would be very useful to show in addition to the showing debt growth as a % of GDP as it shows the destructive effects for the latter stages of debt growth.

Doesn't look like 3:1 to me....and this chart is about 3 months old now. We know this has about tripled, I believe.

Fortune wrote..

Another great chart to supplement the one above to complete the picture is the chart showing GDP growth per incremental dollar of debt. KD posted a while ago. It was rapidly approaching zero back then,

Yeah, that's the really interesting one.. a place we would have arrived at regardless of whether this whole speculative lending spree occurred or not. It tells us that new credit creation just doesn't produce any output like it used to. That's the end of the road for this banking model... and all the pig horses and all the pig men, couldn't put humpty together again.

Quote:

As far as leverage:

"Typical" Person:
Mortgage Debt: $100,000... Income: $33,000/year...Ratio 3:1

"A-typical" Person:
Mortgage Debt: $300,000... Income: $100,000/year...Ratio 3:1

Nation:
Total Debt: $30T... Income (aka GDP): $10T/year... Ratio 3:1

Scotty,
the problem is that the person earning $100,000/year loses half to taxes, so the gearing is higher. Also, GDP is not the same as government income.

I see total US tax receipts at about $2.5 trillion. Thats about a 4:1+ ratio. I'm thinking we can go for a clean double (8:1 ratio) before we pop, just like Florida and Cali RE. With probable falling receipts and spending like drunks propping up and expanding .gov it shouldn't take long.

Ah, guys, this is exactly the misleading thinking about GDP to debt that I talked about in my Death by Numbers article. Scotty is confused by crap that is dispensed by pigmen and regurgitated by... well, I'll stop there.

Scotty's error lies here:

Quote:

Nation:
Total Debt: $30T... Income (aka GDP): $10T/year... Ratio 3:1

Is this debt/income ratio unserviceable?

First of all, GDP is well over $13 trillion (13.8), so 360% of that is more like 50 trillion. This is a non-GAAP, very understated number. But the real problem here lies in the fact that GDP has NOTHING TO DO WITH INCOME (and GDP is vastly overstated by hedonistic adjustments).

CHANGE OF ANSWER HERE:

My first response was actually incorrect. The $50 trillion in debt is more than just .gov debt (actually their GAAP debt is much more, but let's ignore that).

The income that is servicing that debt, however, is still not equal to the GOODS AND SERVICES PRODUCED, so the leverage is going to be much higher, but not as high as my original response.

My true pet peave is the comparison of .gov debt to GDP... this is bad too, but not as bad.

Nate

'Pig horses'??



That must be Paulson.

The tax receipts have less impact than I thought after doing a spreadsheet/graph. If anything, adding them flattens out 1945-1980 and then shows how abruptly debt increases from 1981 onwards.

Nate, I agree that GDP is not the greatest # to use, especially when it's used to justify carrying so much government debt. The above chart might be better if it stuck to government debt to govt. tax receipts, which is approaching 4:1. In the 1940's it was approx 6:1.