Debt and growth dynamics

The Market Debt represents the total indebtedness of the country.

It results from the addition of the debts of all private and public American economic actors. This first graph shows that there is a steady increase in the US national debt and that there is no immediate and simple relationship between the increase in GDP and the debt. # To examine the relationship between GDP and debt, we have expressed the US total debt as a multiple of GDP. The more the GDP is pulled by the debt, the more the ratio GDP / indebtedness of the USA tends to increase. It was enough to divide the country’s total debt by GDP to graphically illustrate the influence of US total debt on economic growth.

First of all, the US has become increasingly indebted to maintain their growth. In 1980, the debt represented 1.9 times the GDP, in 1999 this indebtedness was 4.7 times the GDP. Secondly, GDP in a recession was little affected by changes in the debt ratio. In 1981-82 or 1991-92, the economic difficulties of the US economy do not translate into major disruptions in the interaction between indebtedness and GDP.

It seems that during the first 20 years of the liberal revolution, indebtedness stimulated more and more growth without their interaction giving rise to major occasional turbulence.

The crises are not the correlate of the evolution of the indebtedness: the curve shows it amply, it is not struck between 1980 and 2000. At best we can note an important growth of the debt on the growth starting from 1994 Again, no major crisis explains that the slope is steeper after this date.

It should be noted that the fall in the debt / GDP ratio in 1995 does not correspond to a recession phase. These remarks suggest that the role of stimulating the growth of the economy by debt consolidation has been a constant with minor fluctuations independent of recessions.

Conversely, recessive phenomena may not have been associated with a contraction in indebtedness, which appears to be a constant and a positive condition for growth. The decisive break occurs after 2000. When the country’s debt falls, the US economy contracts sharply. It is that shows the curve at the time of the crisis of the millennium (2000-2003). This is what it shows again after the 2008-2009 crisis.

This decisive break is also evident at the moment of the rework.

Accelerated growth in indebtedness means that the recovery can take place from 2003 onwards or after the dark year of 2009. This relationship between indebtedness, crisis, and recovery indicates two things: growth depends more deeply and intimate of the stimulating role of indebtedness the millennial crisis.

We see this as a sign of a growing fragility of the American economy to produce value in connection with the incentives it receives from the national debt. We explained at length on this blog that the US economy reached a limit of value creation at the end of the 90s.

Being in a situation of under-accumulation of productive capital against the backdrop of exhaustion of the resources of a growth substituting the services to the industry, unable to mobilize its population of working age while the working time was falling and the jobs were less value-creating, making productivity work against the maintenance of a level of employment, risking for all these reasons to dry up its outlets, the American economy fled its difficulties in indebtedness.

Increased indebtedness and financialization of the economy, refinancing of external imbalances and growth of the value of household wealth, call for consumer credit and consumption of capital gains from asset sales, stimulating the consumption of middle-class Americans, wealthy and wealthy have driven growth upward against the backdrop of rising income inequality ever stronger.

Credit, that is to say, indebtedness, was the mainspring of consumerism which succeeded in this feat of force: to make forget to the majority of the population that their incomes progressed more slowly than those of the Top Ten. A wealth financed on credit made forget the widening inequalities. The responsiveness of GDP to debt thus reflects the existence of an artificial overgrowth driven by an increasingly strong debt enabling the economic machine to grow, this debt is the cocaine of an economy whose dynamics disappeared in the late 1990s under the double action of increasing deindustrialization and a saturation of the service market in turn unable to drive growth.

The US economy should have slowed sharply in the 2000s, the millennium and 2007 crises have shown how responsive the US economy is to debt, which artificially boosts growth in times of recovery and accentuates the effects of crises. as soon as GDP-debt relations are disrupted. The crises did not become financial until the 2000s.

In the past, crises did not reflect the growing fragility of the relationship between indebtedness, accumulation of productive capital, accumulated capital and wealth creation, contraction of economic activity and lack of capacity for wealth generation in the US economy. Solutions to advocate for greater indebtedness – whether public or private, whether from corporations, households or the federal state – to get the country out of the crisis faster could not lead to a crisis even more serious than that which will occur in the coming years if growth resumes.

The curve already draws this risk. Since 2010, US GDP has grown modestly despite a very strong increase in, particularly sensitive debt after 2012-2013. It is by finding a debt / GDP ratio that growth resumes in 2010 (4.34), this ratio returns to its 2000 level in 2009 and avoids the US economy a collapse.

From 2010, the debt-to-GDP ratio of 2007 is found, the slight decline of 2011 is corrected in 2012.

Never the level of indebtedness supporting GDP growth was as strong as in 2013: 5.2. To support GDP growth in 2013, a debt-to-GDP ratio of 5.2 times is needed, compared with 1.9 in 1980.

The debt-to-GDP ratio has been increased by 3.3 in thirty years. The deleterious effects of too little accumulation of productive capital against the backdrop of the unfavorable global division of labor in the US have brought the US economy into a sustainable era of disruption from the turn of the 21st century. This disturbance is only the expression of a deep break in growth whose effects are now fully visible. Financialization and increasing debt are the symptoms of these dysfunctions at the same time as the instruments allowing the effects to be postponed.