SOME SIMPLE ARITHMETIC

The U.S. has total credit market debt of about $64 trillion. Even at a super-easy 2%, it means that it costs $1.3 trillion a year to pay the interest. Or, about 7% of GDP. That leaves the economy in a precarious balance – where it has just enough income to pay expenses.

Growth, if you believe the figures, is less than 2%.

4-GDP per decade

Now, add just 1% to interest rates. What do you get? Another $650 billion of GDP that must be devoted to interest payments, or more than 1 out of every 10 dollars’ worth.

Suddenly, billions – perhaps trillions – of investments, speculations, capital improvements, households, small businesses, and major corporations would be in trouble.

GDP growth is evidently inversely correlated with the extent of credit and money supply expansion. In other words, reality is the exact opposite of what the world’s central planners and their countless courtiers keep asserting.

Accelerating credit and money supply expansion has been with us since productivity began to fall. Credit booms result in capital consumption.  It appears that our economic  planners seem largely unaware of this, probably because they have conveniently (politically forced to) forgot about capital theory.

bond bubble