It Took $4 In New Debt To Create $1 In GDP, by Tyler Durden

Does an economy even grow if it’s debt increases more than its growth? It now takes $4 buck to produce $1’s worth of GDP, so are we growing? From Tyler Durden at

Bill Gross’ letter discussing the credit deluge hitting the US came out at a convenient time: just as the Federal Reserve released its latest Flow of Funds report, which while most track to show the change in average household net worth – which is almost entirely a function of the stock market – we find it far more valuable for its nuanced information on the breakdown of US debt. And while it showed that in the fourth quarter, the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $2 trillion to $92 trillion mostly as a result of a $1.5 increase in financial assets….

… we were more interest in the aggregate picture.

It wasn’t pretty.

As a reminder, according to the latest BEA revision, nominal 2016 GDP was $18.86 trillion, an increase of $632 billion from 2015; the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $66.1 trillion. This was an increase of $2.511 trillion in the past year. It means that in 2016, it “cost” $4 in new debt to generate just $1 in new economic growth!

To continue reading: It Took $4 In New Debt To Create $1 In GDP

One response to “It Took $4 In New Debt To Create $1 In GDP, by Tyler Durden

  1. I have not to considered all matters on macro-economy, but it makes perfect sense, for micro-economy, to create an income of $1 out of $4 loan, as long as the interest rate is less than 25% (=1/4) and you can orderly unwind the loan to suit your business requirements.

    For me, the problem may be in UNWINDING the debts in macro-economy. Someone may have to say something about this.


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