Submitted by David Stockman – The Contra Corner Blog
First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called “aggregate demand” and a blatant stab-in-the-dark called “potential GDP”.
I don’t. So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007—debt versus production.
Not surprisingly, we have racked up a lot more debt—notwithstanding all the phony palaver about “deleveraging”. In fact, total credit market debt outstanding—-government, business, household and finance—-is up by 16% since the last peak—from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak(2001); and that was up 103% from the business cycle peak before that (July 1990). Yes, the debt mountain just keeps on growing.
As a proxy for “production” I am using non-durable manufactures rather than the overall industrial production index for three good reasons. The former excludes utility output, which incorporates a lot of weather related noise, and also excludes oil and gas production, which, as we are now learning, embodies a whole lot of debt. Besides, if the US economy has any hope of growing, non-durables should not still be migrating off-shore at this late stage of the global cycle; nor are they subject to fashion or lumpy replacement cycles like cars and refrigerators. Continue reading
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