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When Will We Learn? Fueling Economic Growth With Debt Doesn’t Work!
John Del Vecchio: Humans tend to have short memories, especially when it suits them. We ignore danger in favor of pleasurable — albeit short-lived — outcomes.
You’d think that after the last stock market devastation, we would have learned that fueling economic growth with debt does not work. Well, here we are again.
Economic growth has, one again, been driven in large part by dramatic increases in debt in recent years. Debt can be a good strategy to propel growth further, but when we start issuing debt just to finance the debt, we reach the point when we’re squeezed the last bit of juice out of a week-old lemon.
Now, I’m not just pointing fingers at the U.S. government, though they certainly haven’t set a good example. U.S. businesses and corporations are to blame for this mess, too.
The chart below illustrates what happens to growth rates when they’re pressured by such high levels of debt leverage:
If you look in the small boxes toward the top, you’ll notice that at current levels of debt over 300%, real GDP is about half the growth rate compared to debt levels around 156%. Even worse, nonfarm payroll growth plummets 70%, from 2.4% to 0.7%. Let’s not ignore that impact on the majority of U.S. workers — that would be like your boss raising your salary $600 after a series of $1,500 raises the years before.
To investors both foreign and national, this makes the U.S. less attractive than other regions. Why would you invest in a country
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Source: http://marketdailynews.com/2015/03/19/when-will-we-learn-fueling-economic-growth-with-debt-doesnt-work/
