Hello, Subscribers:
The famous quip "The definition of insanity is doing the same thing over and over and expecting different results" has often been attributed to Albert Einstein. Apparently, he never uttered those words, but if he was alive today he might be tempted to shout them from the highest hill, or Capitol Hill, when it comes to what U.S. policymakers have done to America with their undying addiction to debt.
As a result of the misguided belief that incurring trillions of dollars of incremental liabilities is pro-growth, the USA's once rock-solid finances are suffering a slow death. However, using a correctly attributed quote, in this case from an Ernest Hemingway character, when he was asked how he went broke — slowly, then suddenly — the speed of this financial demise is accelerating.
Total Public and Private Debt Outstanding Versus Nominal GDP, 1971 to 2025
The above image from the justifiably irascible David Stockman, former Director of the Office of Management and Budget during the Reagan administration, drives home the point of just how insane such policies turn out in the fullness of time. In the article that accompanied this chart, David, a key architect of what was known as Reaganomics, noted that real U.S. GDP is up by a factor of four since 1971. Total U.S. debt, however, is 64 times higher than it was 54 years ago. That's a seriously deficient return on capital.
The ratio of total debt to GDP had stayed very close to 150% of GDP up until 1971 (ex WWII) when the U.S. economy enjoyed its best growth periods. It is now a staggering 350%, while the rate of GDP increases has flattened out. On a real, or inflation-adjusted, median family income basis, it's even a more distressing story. (The below is also from David Stockman's recent article, How the Fed and White House Spenders Reduced Growth to Stall Speed.)
Real Median Family Income by Presidential Term
Fortunately, the debt-to-GDP ratio has also stabilized, but those $100 trillion or so of liabilities, shown in the first chart, need to be serviced (i.e., principal and interest payments — okay, at least the interest). This has placed a massive burden on the economy, one that has become increasingly onerous to carry.
David “The Haymaker” Hay
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You should see how my first wife could spend !