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The crisis explained in one chart: Debt-to-GDP

Tuesday, January 13, 2009, 9:41 AM

If I was ever given just one chart, just one piece of data, to make the case that we were on an unsustainable path that had a date with a long period of contraction and economic hardship, it would be this one.


Figure 1: This chart compares total debt (or “credit”) in the U.S. to GDP (or Gross Domestic Product) on a percentage basis. Current total credit-market debt stands at more than 340 percent of total GDP.

As we can see on this chart, the last time debts got even remotely close to current levels was back in the early 1930s, and that bears a bit of explanation. The debt-to-GDP ratio back then didn’t start to climb until after 1929 (blue arrow), because debts remained relatively fixed in size, while it was the GDP that fell away from under the debts. With the exception of the Great Depression anomaly, our country always held less than 200 percent of our GDP in debt (green circle). In 1985 we violated that barrier and have never looked back.


Daily Digest - Jan 13

Monday, January 12, 2009, 8:48 PM
  • Influential Professor Says US has 'Entered a Depression'
  • We're Borrowing Like Mad. Can the U.S. Pay It Back? (Hat Tip JKibbe)
  • Humor, Video on Central Banks
  • Bush to Seek Rest of TARP Money At Obama's Request
  • The Companies That Will Dominate Retail Job Cuts
  • Shane Co., U.S. Jewelry Retailer, Seeks Bankruptcy
  • Cost of war (Graphic)

Daily Digest - Jan 12

Monday, January 12, 2009, 9:30 AM
  • Can science help solve the economic crisis?
  • States with worst jobless rates share root causes 
  • Bad job news at the Jones house 
  • Obama weighs decision about bailout funds
  • Stimulus Projected to Save 3.675mm Jobs... 3mm Too Little? 
  • Christina Romer Video on Stimulus
  • The Fed's Bubble Trouble 
  • The layman's finance crisis glossary 
  • The World's Largest Hedge Fund is a Fraud, November 7, 2005 Submission to the SEC Madoff Investment
  • Business Risks and Costs of New Nuclear Power
  • It's Survival of the Weak and Scrawny 

Daily Digest - Jan 11

Sunday, January 11, 2009, 9:37 AM
  • Yuan-settlement test to start
  • What Are the Chances of a Depression?
  • Asking for TARP Funds Takes Only 27 Minutes
  • Application Guidelines for TARP Capital Purchase Program
  • Warren's Warrants More Valuable Than U.S. Taxpayers'
  • Quantitative and qualitative easing again 
  • GMAC Announces Interim Changes to Its Board
  • Americans Grow To Like Old Cars 
  • Agency Raises Concerns About Car Makers' Pension
  • Obama / Harwood Interview
  • UBS closing U.S. clients' offshore accounts

New Podcast Ready for Subscribers

Sunday, January 11, 2009, 9:12 AM

The next podcast is up and ready for subscribers.  This second podcast went better than the first from a production standpoint, although I already have a raft of ideas for how to improve the third.

In this one, Becca Martenson joins me as the co-host.

As always, keep your questions coming!  They are the best part.


In this podcast entitled The Last Great Bubble, Chris discusses market activity for the past week,  employment and unemployment data, and the possibility of another great bubble in bonds hiding in plain sight before addressing subscriber questions.

If a last great bubble lurks in our near future,  then an enormous advantage exists for those that can either step aside or take temporary advantage of its bursting.


Daily Digest - Jan 10

Friday, January 9, 2009, 9:05 PM
  • Janet Tavakoli, Author, Video Interview (Wall Street's Financial Meth Labs & Ponzi Schemes)
  • Cheney Says Nobody Saw Economic Crisis Coming
  • Bush Prepares to Ask for Second Tranche of Bailout Funds
  • Unemployment Way Worse than 7.2% Due to Birth / Death Adjustment (2 Charts)
  • Part-time jobs
  • Unemployment Rate vs. Broader Total Unemployed (Chart)
  • Boeing Cuts 4,500 Commercial Jobs as Economy Weakens 
  • More Layoffs Coming in the Oil Patch
  • Roubini forecasts recession will last 2 years
  • SNL Morgan Stanley Parody Video (Humor)
  • Change in US Consumer Credit and Mortgage Debt Relative to GDP (Chart)
  • Peter Schiff Audio Fox News Talk
  • Financial company default risk
  • Japan Economy Watch
  • British Airways credit card is UK's most expensive - after hiking interest charge to 46%
  • Office Vacancy Forecast Chart (U.S.)
  • Macy's Goodwill Writedown May Speed Stock's Spiral
  • Rubin Out At Citi (C)


Federal Debt beginning to "go vertical"

Friday, January 9, 2009, 8:42 PM

In the magazine The Economist, they recently reported this interesting bit of news:

Federal Debt could go to 400% of GDP

On January 7th the Congressional Budget Office (CBO), a non-partisan outfit, released projections that show the financial crash and the resulting recession are already wreaking havoc with America’s finances. It reckons that the budget deficit will soar from $455 billion in fiscal 2008 (which ended last September 30th) to an astonishing $1.2 trillion in the current year. At 8.3% that would be the most as a share of gross domestic product since the second world war.

But the underlying picture is worse for several reasons. First, it does not include any estimate of the cost of Mr Obama’s planned fiscal stimulus, which he will seek from Congress soon after being inaugurated. Second, the CBO assumes all of George Bush’s tax cuts will expire as scheduled at the end of next year and that the Alternative Minimum Tax, a parallel levy aimed at the wealthy, is allowed to ensnare a growing share of the middle class each year.

One thing to understand about even the horrendous sounding “8.3% of GDP deficit” is that it is vastly understated. First, as they note in the article, not everything is being counted, such as the cost of the stimulus plan.

But second, even if such excluded costs were counted, it’s important to note that the way the government reports its fiscal condition would be illegal for any public company.


Daily Digest - Jan 9

Thursday, January 8, 2009, 7:59 PM
  • Obama taps spending watchdog, eyes Social Security
  • Obama calls for a whole new approach to end crisis
  • Obama warns of dire consequences without stimulus
  • The end of the financial world as we know it (hat tip Luke)
  • Obama assembles powerful west wing (Where is Chris Martenson?)
  • TARP wiped out by downgrades
  • Huge mortgage rally...
  • Same stores sales... down, but not out
  • MBA says commercial real estate market coming under pressure
  • Commercial property loses shelter
  • Flight to safety in 09, USD, gold, Euro, Yen
  • Paulson speaks (video)
  • Joseph Stiglitz and Martin Feldstein discuss stimulus (Charlie Rose video)

Daily Digest - Jan 8

Wednesday, January 7, 2009, 10:13 PM
  • CBO projects $1.2 trillion deficit for 2009 
  • Congressional Budget Office The Budget and Economic Outlook
  • Obama: Financial Markets Face 'Substantial Overhaul'
  • Paulson Says GSEs Should Become Public Utility-Like Firms 
  • Fed faces tough task ending emergency support
  • The Fate of Paper Money 
  • U.S. debt is losing its appeal in China  
  • Government Panic Could Herald Dollar Panic 
  • Detroit School Lacks Toilet Paper, Light Bulbs 
  • FACTBOX-U.S. economic report shows poor hit hard 
  • Budget gloom will toughen resistance to stimulus 
  • CNN to Air Timely Documentary and Discussion About U.S. Economic Challenges 
  • Real-Estate Executive Found Dead in Apparent Suicide 
  • U.S. companies face $409 billion pension deficit: study 
  • Italian Pensions Sapped by Private Funds Bush Backed
  • Gold Demand (Chart) 

Daily Digest - Jan 7

Tuesday, January 6, 2009, 9:40 PM
  • Metal loses its mettle: Alcoa (AA) cuts like crazy even though it is profitable
  • More observations on the economy, and none of them good
  • Minutes of the Federal Open Market Committee December 15-16, 2008 
  • German billionaire Merckle takes his life amidst financial crisis 
  • Economic slump weakens pending home sales 
  • A sign that credit is going to flow (chart)?
  • The very flawed weekly mortgage applications survey
  • Auto sales (chart)