Debt, Total Debt and by Sector as Ratios to GDP

Well, I am stung by “reason’s” criticism of my ‘misleading’ graphs. Yes, they were in nominal terms, but nominal terms are what you have to repay. But here are the same data as graphs plotted as ratios to GDP. They are all ratios of the nominal figures, so the ‘nominality’ cancels out. Not as good as ratios to income, as reason further suggests, especially the likely to be interesting ratios to the income of the various sectors. Which we shall see.

In any case the picture is no prettier, although noisier, ratios being what they are. See: http://anamecon.blogspot.com/2011/10/today-were-just-going-on-little-about_09.html

for the original graphs.

Here is total debt to GDP:

This is the sum of these figures:

GFDEBTN/1000 Total debt of the US federal governemt, divided by 1000because the original graph is presented in millions, and for some reason just doesn’t convert if you naively add graphs together.
HSTCMDODNS Total Household debt of all kinds, I think.
SLGSDODNS Total debt of State and Local Governments.
TBSDODNS Total debt for non-financial businesses.
DODFS Total debt for financial sector.

Pretty much still exponential, with a bulge during the Reagan years. Reagan's good years financed by deficit spending? What would Keynes say?

Here is the graph for the various sectors, separated. Still clear, or even more clear, actually, is the point I was trying to make, in my comment, with the original graph, that deleveraging, and it is mostly deleveraging in the financial sector, seems to correlate with the federal government going into debt at an ever faster rate. That is, our government seems to be borrowing from the banks, to rescue the banks. And the debt that is still increasing, is the debt of the people.

One thing that is interesting is that the debt of the financial sector has gone from the lowest to the highest. Who do they owe? Check out: http://www.youtube.com/watch?v=1eSVIXQzsFs

Looks like the banks are just a front.

The Banks are Forcing Debt on the Rest of US

(Check out the videos in the previous entry.)

Government issues about 5% of the money that is in circulation. The rest of it is created by banks, when they make a loan.

When a bank makes a loan, it creates the money to loan out of nothing, just adding numbers on their computer. So the total money supply is the principal of all the loans outstanding, P, plus the amount issued by the government, G. This does not include money the government borrows, which, after all, is still just created by the banks.

The banks then charge interest on the loan, on money which they have created out of nothing.

Because of interest, the total money needed to pay off all loans will be greater than all the money loaned, ie greater than the money supply in ratio (P + G + I - E)/(P + G), where I is all the interest, (not the interest rate,) and E is all the expenditures of the financial industry, if I > E. (If I < E, the opposite will be true.) This implies (I - E)/(P + G + I - E) share of borrowers will always be unable to pay off their loans. Only when I = E is the system stable, and all borrowers able to pay off their loans. Where E is less than I, this leads to an exponential growth of both the money supply and debt. Only with an exponential growth in real consumption, and thus necessarily production, can this be maintained. Since this is ultimately impossible, this spiral has no (nice) ending.

What can the government do? From the equation, it would seem not much, since G appears in both numerator and denominator, and is only a small portion of the total money supply. However, if we consider that the interest comes due at the end of the time period we are considering, it would seem that if G were to increase by I-E over that period, the money supply would remain in balance. That is, the government, if it wishes to keep the economy from going bad, would ‘print‘ the quantity I-E, that is spend that quantity in excess of revenue, but not by borrowing it.

However, for the government to borrow that money it would also add to I. While this might be useful counter-cyclically, it would be less efficient than printing it. Further, it would add to the total debt burden, and thus fail to address the long range problem: It would still contribute to a debt spiral.

So, barring government ‘printing’ at least the quantity I-E, the financial industry, by holding expenditures, E, less than the interest, I, on all loans outstanding, creates a shortage of money. There is simply not enough money to pay off all the debt and the interest. So they force the rest of the system into increasing indebtedness to them, in order to pay off the debts they already owe.. They force individuals, companies, and governments to take out more loans or default. They have simply created a shortage of money needed to repay the loans and the interest, in the real economy, while hoarding the rest of that money to themselves.

The financial industry has been doing this for years. That is why individuals, companies, governments and their countries' real economies, are gradually being ruined. That is why, in the US, for instance, total indebtedness has been climbing to over $50 Trillion, now about equal to all the US real assets. Great Britain, and many other countries are in worse shape.

http://www.comstockfunds.com/default.aspx?act=newsletter.aspx&category=SpecialReport&newsletterid=1504
(Check out the charts. The links are at the top of the page.)

The figures are incredible when you think that it’s most everybody that’s in debt. Indeed, is so called deleveraging (paying off debt) even possible, with so much debt? After all, annual interest on $50 Trillion, is about $2.5 Trillion, at 5%, which is more than the entire revenue of the federal government.
http://en.wikipedia.org/wiki/2010_United_States_federal_budget


Government austerity, by forcing all future increases in debt into the private sector, will inflict tremendous hardship and damage to the real economy.

This 'crisis' is just another step down the road, where the financial industry, in their eagerness to own it all, kill the goose that lays their golden eggs.