Let’s explore expansion in Total Credit vs expansion in GDP over time.
Chart Notes
- Real GDP is from the BEA at a seasonally-adjusted annualized rate using the GDP Deflator 2017=100
- TCMDO is Total Credit Market Debt Owed end-of-quarter, nominal dollars.
- Real TCMDO is inflation-adjusted TCMDO using the GDP Deflator 2017=100
Real GDP vs TCMDO Detail
Change Since 2019-Q4
- GDP: +2.55 Trillion
- TCMDO: +27.33 Trillion
- Real TCMDO: +6.30 Trillion
It took an expansion of $10 in credit to produce $1 in GDP.
$27 trillion doesn’t go far when inflation is out of control.
Change in Real GDP vs Change in TCMDO
Real GDP, Government Debt, and Total Credit Market Debt Owed (TCMDO)
Detail Since 2019 Q4
- GDP: +2.55 Trillion
- US Government Debt Held by Public: +11.67 Trillion
- US Government Debt: +13.00 Trillion
- TCDMO: +27.33 Trillion
Of Government debt, it’s the debt held by the public that matters most. The rest is inter-government accounting.
REAL GDP. TCDMO, Debt Held by Public
Dramatic Progress!
I am pleased to report “dramatic progress” in 2024.
It “only” took a $3.80 trillion in total credit expansion to produce an increase in real GDP of $650 billion.
In 2022 it took an expanse of $6.85 trillion in credit to produce an increase in real GDP of $845 billion.
Is that progress, or what?
On the other hand, US Debt held by the public rose by $2.82 trillion, up from $812 billion in 2023 and $1.90 trillion in 2022.
Hello Jerome Powell, Is Everything Under Control?
On January 31, 2025, I asked Dear Jerome Powell, Is Everything Under Control?
Gold does not believe the Fed has things under control and neither do I.
Gold is now about $3059 per ounce. So add about $250 to the price in the above chart.
Three Questions of the Day
- Is the Fed suddenly going to get things under control?
- Will DOGE cut $2 trillion or even $1 trillion in government expenses?
- Is Trump going to magically reduce the deficit via tariffs or any other means?
Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed
On February 3, 2025, I commented Fedthink! The Fed Is Incompetent by Design and Can’t Be Fixed
Is the Fed playing politics? Does the Fed know what it’s doing at all?
Gold does not believe the Fed will fix anything, Congress will fix anything, DOGE will fix anything, or Trump will fix anything.
And neither do I.
Nobody will fix anything because the system is totally broken.
Mish should explain how he would fix the economy
I have explained this countless times.
Small government
Anti-war
Anti-union especially public unions
In general libertarian
End Davis Bacon and prevailing wage laws
Right-to-work
End the Jones Act
No tariffs or subsidies except true national security concerns
consumption tax excluding food, medicine and shelter – the latter with limits
End the Fed
We’ve tried every damnn thing else – how about a free market
No expert in that area. But: As DR. Ravi Batra pointed out in his book: “Greenspan’s Fraud”:
“If demand and supply are to be balanced over time, then either wages rise in sync with productivity, or productivity growth must be matched by the growth of wages plus debt…so debt growth was the only way to maintain demand-supply equilibrium from the 1970s till today.”
The U.S. Golden Era in Capitalism was financed in 2/3 by velocity. In comparison, today’s economy is financed almost entirely by new money.
Mish and all. As a Stock Analyst back in the ’00s I covered this. And a real insightful dimenishing returns to sale from Gov deficits.
Traveling at the moment. Will send later.
Mike Shedlock
1 day ago
Starting now for at least 30 hours, I will be in economic limbo. I have posts scheduled, and some very good ones, but I will not be current on news including liberation day.
I am on an overnight photography trip, Reflection Canyon Utah. Unfortunately, the weather sucks, at least that is the current forecast and conditions. But the trip is on.
This means I will be very delayed in approving comments. Don’t repeat them as I won’t see them.
Some regular posters have their comments regularly go into hold. I believe ABCD is one. CzarChasmReigns and Lil’ mister are two more I am aware of. There are more. I don’t know why, but likely changing IP address.
If you don’t see your comments for over a day this is why.
PapaDave or someone, please post this as a comment on my automated Posts on Tuesday and Wednesday.
I have 3 more today and one scheduled for tomorrow morning.
Thanks
I was reading Mish’s blog for MANY years. Other than his COVID coverage, his opinion has been spot on. I purchased 100oz of gold for $425 when I started reading his blog and still hold those 100oz.
Hold on to your seat because this roller coaster is about to get wild. I’m going to probably start selling 1oz/month soon.
No, no. It will be too early. You will regret for that.
Very easily gold price will go up over 5000.
Fed Gov expenditures used to be around 17% of GDP, from the 1940s-1960s.
But since 2005, Fed Gov expenditures are 21-25% of GDP.
Meanwhile, Fed Gov total revenues have been stuck at 17% of GDP.
Revenues/GDP has been in a tight range of 17 +/- 3% going back 45 years to 1980. It’s unrealistic to expect a major increase in revenues/GDP.
The way to grow tax revenues is to grow non-government GDP.
And government spending needs to be cut back to a level consistent with tax revenues.
The Federal Fiscal Crisis is getting more difficult now that interest payments consume over 21% of revenues (highest since the 1980-1996 fiscal crisis).
The problem is going to keep getting worse as more of the older, low-interest national debt rolls over at current, higher interest rates.
“The Federal Fiscal Crisis is getting more difficult now that interest payments consume over 21% of revenues (highest since the 1980-1996 fiscal crisis).”
David Rosenberg has recently said that when debt servicing hits 25-30% which is highly likely by the end of Trumps term that default begins to enter the picture.
Its a no-brainer that its not going to take a 100% debt servicing for something to break, exactly what that is, I dodnt know.
“U.S. In Deep TROUBLE…” | David Rosenberg
Roughly 5:35 of the video, Rosenberg states that when debt servicing hits 25-30% investors wake up to default risk.
Mish, this analysis suffers from the Stock vs. Flow problem. The debt level is a stock. GDP is a flow (rate per year). A large increase in debt stock might still be beneficial provided the resulting GDP flow is not too small.
For GDP comparisons, the metric to compare with shouldn’t be debt but interest costs. (Interest is the annual flow associated with debt stock, and GDP is the annual flow associated with the capital stock.)
Instead of the nation, consider a company.
If I’m a company and I borrow $10 to generate $1 in revenue with a margin of 30-50% after interest costs, that’s a 3-5% rate of return. That’s not great – but I’m not going broke. There’s still a risk associated with rolling over the debt, unless amortization is included in the costs.
On the other hand, if I borrow $10 to generate $1 in revenue, but I’m not making any profits after interest costs, I’m in trouble. I might be committing financial suicide. Or maybe I’m buying time for future growth to resume, and saving the company.
Now consider the U.S. government.
If FedGov borrows $10, and spends it so that annual tax revenues increase by $1, that would only be ok if the revenue increase is sustainable long enough to pay off the debt (e.g. the interest on the debt is always <10%).
Historically those conditions are often not met.
To solve this simple maths, government is awaiting AI which is more than 10,000 times brilliant than human being.
Lets wait and see
Deep learning (DL) is proving remarkably effective at solving dynamic models in economics: https://x.com/JesusFerna7026/status/1906979872750068188
Whatever it takes, the fed will be willing to supply to support the equity market. Investors apparently love it.
Bond vigilante won’t tolerate it.
Given the rumor that Senate Republicans are now working with a new budge baseline that will increase federal debt to 134 percent of GDP by 2034, we urgently need a serious fiscal consolidation plan. DOGE’s juvenile fiscal vandalism is only putting us into a deeper fiscal hole.
It is because of our desire to relieve, reduce or limit suffering that we are so far in debt, imo. We try to reduce suffering by increasing debt and growing. That has worked fine (some might say terrible, but still functional) for decades now. Well since Reagan, really. It’s not working as well, now. Is there any way out of this without difficult suffering somewhere? We’ve been using debt infused growth for so long. Difficult times. Difficult choices. Difficult decisions. Somebody will suffer, no doubt.
” It’s not working as well, now. Is there any way out of this without difficult suffering somewhere? We’ve been using debt infused growth for so long. Difficult times. Difficult choices. Difficult decisions. Somebody will suffer, no doubt.”
Im thinking everyone will suffer. Ive put this link out a few times already about a 2010 report “Catastrophic Budget Failure”. I believe this is where we are headed.
Article 07-Burman.indd
” We fear, however, that a far worse scenario may be in our future. It is possible that interest rates will not respond significantly to rising debt levels for many years — because of a bubble in financial markets or because foreign lenders have an incentive to fuel our imports by enabling our large budget deficits. This cannot go on forever and when the bubble bursts, the consequences for the United States would be a severe recession or depression with a significant probability of hyperinflation. Since the United States is so large relative to the world economy, catastrophic budget failure would likely create economic carnage around the world, which could feed back to deepen and lengthen our own economic decline.”
I’m old. Don’t reduce old-age pension and medicare. No way. How can I live without them? Tax billionaire.
“It took an expansion of $10 in credit to produce $1 in GDP.”
Pushing real hard on a string.
Not necessarily. If I borrow $10 million at 5% interest for 30 years, and produce $1 million/year in annual income as a result, I’m making $500K in profit every year. Nothing’s wrong with that!
Until…
Since when does credit expansion grow anything?
South America economies would disagree.
credit expansion works if it results in productive growth like a farmer borrowing to plant and using his profits to pay back. Some govt debt was productive like infrastructure, etc, but now its mostly entitelment payments many of whom don’t deserve or need it. Go DOGE
Credit expansion at a faster rate than economic growth is proof Keynesian economics didn’t work. Or as The Maestro put it, “Pushing on a string…”
The fundamental question is how borrowing has increased this much as savings have declined. Net US savings is in a concerted downtrend since early 2019.
Ah yes…a system where you can borrow money without anyone having actually provided savings. People say they don’t like fascism, but they seem to love a fascist banking system characterized by legerdemain and coercion.
Awwww we’re finally getting to the root of the issue of our society and economy.
Mish, would love your input on the cost/benefit analysis of what I call the ‘carrot’ or the ‘stick’. Which one is better, more efficient in bringing back manufacturing.
CARROT… This is tax incentives, tax breaks, free property, grants. Look at the CHIPS act, giving Intel $8,000,000,000 to build plants, only to see them put off the Ohio plant until 2030 now.
Or how about Washington state bending over backwards (after years of the reverse) trying to appease Boeing with keeping work in state, only to leave to Charleston, China.
Then there’s the STICK… Where it’s either pay me now tariffs, or pay me later via bringing manufacturing jobs back into the United States.
The president of the UAW says Stellantis could easily ramp up a plant they just closed down and sent out to Mexico.
Will much of the manufacturing take a few years to build and rollout, of course it would.
But, it’d spur a construction boom, which gets overlooked.
Either way, whether its tax breaks or tariffs, the tax payer/ consumer is paying for it. The question is, which is more efficient, effective ?
No matter your take on this, the United States economy of 70% consumerism needs to turn around, like yesterday, this is UNSUSTAINABLE
The asset-debt macroeconomic system … Maybe a ore telling parameter to follow would be the annual total interest payment burden to GDP (growth/decay). This is dependent on prevailing interest rates. With globalization and the US prior role of superpower ally, protector of allies and sea lanes and western values, fed funds rates and 3 mo T-bills were near zero for many years. The annual interest-rate payment burden to relative to incremental GDP change was relatively low and tolerable. With de-globalization and tariffs the annual interest rate payments to (likely negative)GDP growth ratio will soar.
… more telling
“Of Government debt, it’s the debt held by the public that matters most. The rest is inter-government accounting.”
I was expecting more intelligence than this from Mish. The US bonds in SS/Medicare funds are very real debt. Almost $3 trillion in SS alone. That is US govt debt the US taxpayer is responsible for.
I suspect that at this point any credit expansion will increase inflation more than nominal GDP. If that’s true, credit expansion cannot increase real GDP.
So, let’s see, you push out a lot of manufacturing jobs over 4 or 5 decades. Remember, one manufacturing job can produce something like 5 to 7 other jobs. You greatly increase hiring in government, medical, and service jobs. Government jobs are, to a great extent, like leeches on the economy, They don’t produce any benefit to the economy. Given the poor outcomes being produced in a lot of public schools, much of the employment in public education is nonproductive. Same with military jobs — our military is disproportionately large. If we’re not at war, what productive thing are they doing. The government buys an F-35 jet. It costs millions and is paid for with tax dollars (or debt dollars), both of which are net drains. And a lot of its parts come from factories located in China. What does a military clerk produce? So, you’ve moved a lot of employment from productive to unproductive over decades, but you (as a country) act as if you didn’t. The consumer culture is relentlessly driven to buy things that aren’t all that necessary. The medical establishment develops more marginal drugs, and more medical equipment is deemed necessary, and nobody worries about the cost because insurance or Medicare. Military spending rises. The result — the only way to increase GDP is via credit. The only way to have a decent quality of life is via credit. Nobody is earning anything extra. The US is a hollow shell, and I truly don’t trust government statistics about real wages. Manufacturing must be restored.
Perhaps this hollow shell you describe is called “peaceful human life.” Rather than being relentless productivity expanders (until THAT hits its own wall), I am thinking of an older sense of “employment” as, keeping humans busy so they don’t start widespread preying on each other. Liquidate labor, liquidate the farmers, alas, soon you find yourself in 1917 Russia. You show your hand when you don’t describe, apart from these useless things, which ones are truly useful, and how a society could exist with merely those things being produced. We would have an excess humans problem? How to “remedy” that? I think righteousness and a high horse are a little too easy to ascend to here — or to put on the appearance of ascending. What arch-useful and efficient thing do you do?
Reply to Peelo on Mish, I guess. There are 45,000 Chinese companies in the supply chain of the manufacture of US military equipment. I don’t need to describe useful employment — right now, we need manufacturing employment. As noted above, manufacturing employment has a multiplier effect through the economy. We have allowed ourselves to get dangerously close to being completely vulnerable to the Chinese, and I don’t want to live under Chinese rule. Also, you have a perverted definition of employment. The purpose of employment is not to keep us from preying on each other. It is to contribute to the economy and provide benefit to self and society. I’m not on a high horse — it’s a very low horse. At some point, the softness of your feelings-based BS has to give way to the hardness of nuts-and-bolts practicality. We will adjust or die, and your ilk will moan and complain throughout the process. The left cannot see one step in front of itself. When the enemy is at the gate, it’s too late.
oh ya lets give the peasants pitchforks GOP lawmakers eye SNAP cuts, which would scale back benefits that help low-income people buy food at a time of high food priceshttps://theconversation.com/gop-lawmakers-eye-snap-cuts-which-would-scale-back-benefits-that-help-low-income-people-buy-food-at-a-time-of-high-food-prices-208556
Divergence is at the start of the great bull market mid 80s. GDP, who cares, look at those stonks!