Has the U.S. Reached The Debt Saturation Point?
The linked article below is a couple of years old, but contains an interesting chart about our return on debt. It shows that when the change in U.S. GDP is divided by the change in U. S. debt, we actually reached the point of debt saturation in 2009. In other words we reached the point where our return on debt is actually negative. From the article:
“Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.
Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!”
While you might or might not agree with some of the other rhetoric in the article, it is worth a look just to see the chart. A company couldn’t operate with this sort of return on debt capital.
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