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Tuesday, December 23, 2014

Grow Your Way Out Of Debt? Don't Make Us Laugh...!

Too Much Debt

But today, we continue with our look at the macro situation at the end of 2014… One way of measuring GDP is to add together consumption, investment, government spending and net exports.

The idea is to measure total spending. And in this way, also measure production. Most things produced are sold. Add up how much spending there is and you get an idea of how much production there’s been.

US GDP is reported to be $18 trillion a year – with $3.5 trillion coming from US federal government spending. Add state and local government spending, and the total rises to more than $6 trillion.

This means that the private sector – the part that pays the bills – is only $12 trillion. Total debt – government, corporate and personal – in the US is now $58 trillion (misreported yesterday as $59 trillion… but what’s a trillion dollars between friends?). That’s nearly five times the real economy that supports it.

And it helps explain why it is so hard to “grow your way out” of debt. Assuming an annual interest rate of 2%, even if you could contain debt increases to 3% of GDP a year, the productive part of the economy would have to grow at 5% just to stay even. No developed economy in the world is growing that fast.

At an interest rate of 3%, the annual interest on $58 trillion is $1.7 trillion. That’s slightly less than 10% of GDP. But it’s 14% – or one of every seven dollars – of the private sector economy.

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1 comment:

Anonymous said...

I borrowed my way out of debt using the connect the dots system.A really good way to pay off debt and make money if a person can go for app 2 years without touching the base amount.