The economy is 2-3 times more debt-dependent - with $19 Trillion DEBT EXCESS compared to prior debt ratios.
Here's one graphic of many shown in the main Total Debt Report.
This is A SCARY CHART - showing 4 decade trends of total debt in America (the red line, reaching $34 trillion) vs. growth of the economy as measured by national income (blue line). (NB: these figures are adjusted for inflation).
Which line goes up faster, the red debt line or the blue national income line? Answer: the red debt line. And, that debt line is going up faster and faster than national income! Right?
...in the period 1957 to mid 1970s total debt (red line on chart) was increasing close to the growth rate of national income (blue line on chart), despite paying war debt for WW II, Korea and Vietnam.
But, in the last 20 years total debt ratios have zoomed up, up and away - growing much faster than national income. It has now reached $34 Trillion ($26 trillion private household/business/financial sector debt PLUS $8 trillion federal & state/local government debt). Here's some highlights:
* Last year's total debt of $34 Trillion was 8 times higher than the $4 Trillion debt in 1957 (both measured in inflation-adjusted 2002 dollars).
* Last year's total debt per person was $119,442; this compares to $25,392 in 1957 (both measured in inflation-adjusted 2002 dollars). That's a debt excess of $94,000 per man, woman and child.
* 2002 debt of $34 trillion was 414% of national income; the debt ratio in 1957 was 186%. If 2002 debt had been at the 1957 ratio, said debt would have been $15.5 trillion, not $34.4 trillion - indicating excess debt in America today of $19 trillion.
* Stated differently, in 1957 there was $1.86 in debt for each dollar of national income, but today there is $4.14 of debt for each dollar of national income. It also means that this extra $2.28 of debt produces zilch national income.
* In the 1990s, 70% of today's domestic financial sector debt was created as it increased 3.5 times faster than growth of the economy; household and business debt increased 50% faster. During the same period the federal government siphoned off $1.7 trillion of trust fund surpluses, creating new un-funded IOUs (the total IOUs now stand at $2.6 Trillion, with nothing budgeted to pay-off).
* In the past year the debt record was even more scary: household debt increased 4 times faster than the economy - and the federal government's bite out of trust funds set another record high.
* Even students are learning how to go into debt up to their necks. The federal General Accounting Office, according to AP's Martha Irvin in January 2002, says college students are graduating with an average of $19,400 in student loans. Additionally, average student credit card debt rose 46% from 1998 to 2000, according to the student loan agency Nellie Mae. Meanwhile, universities promote credit cards issued by agencies who kick-back to them.
* Since 1990 it is clear the economy was 'driven' almost entirely by the biggest injection of new debt in history, which produced a much diminished lower return in national income per dollar. Just as one hooked on drugs needs ever increasing amounts of drugs to 'survive,' it appears America needs ever increasing amounts of new debt to eke out diminishing amounts of growth - even with 2 wage earners per family.
* America's total private and government debt is at least 100% higher compared to debt ratios of the recent past.
* AND - America's debt position is such that foreign interests now own more and more of America - about "$8 trillion of U.S. financial assets, including 13% of all stocks and 24% of corporate bonds," according to Bridgewater Associates. According to the Federal Government Debt Report, foreign interests also own 40% of U.S. government Treasury bonds & notes and 14% of U.S. government agency debt (such as household mortgages financed by Fannie Mae) up from 5% in 1995. The largest supplier of mortgage funds is Fannie Mae which borrows the money on the open market - and, according to Bloomberg in Sept. 2002, "about a third of the Fannie Mae's benchmark debt is sold outside the U.S." Additionally, foreign interests own real estate and factories - and, some would be surprised to learn that the well-known and respected California-based Pimco, the world's largest bond fund, that many believe is an American firm, is in fact a unit of Allianz.AG, a German firm.
* We should not be mad at foreign interests. We are the ones consuming beyond our own production and savings by borrowing from others, creating unprecedented debts and trade deficits PLUS excessive government spending. Where America's debt used to be owed domestically, increasingly huge portions are now controlled by foreign interests. America, therefore, is less and less independently in control of its economy.
Debt in the past decade increased faster than ever in relation to national income, and debt intensity last year increased even faster!
Michael Hodges is the author of the Grandfather Economic Report - a series of reports demonstrating in picture form certain disturbing economic trends facing families and their children, compared to prior generations, with the findings made available as a free public service for families and youth. Mr. Hodges is an American citizen educated in physics, a retired business executive and concerned grandfather. You can reach him via e-mail him at michael-h@worldnet.att.net.
http://www.dailyreckoning.com/