The Hunt for the Next 10 Bagger

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When This Liquidity Bubble Pops, We'll Face The Biggest Crisis Yet

Nov. 13, 2018 5:34 PM ET

Summary
Debt becomes a huge drag on the economy when it rises over 80–-90% of GDP.

US government debt with local and state debt is now 106% of GDP.

If we factor in off-budget deficits, US total debt will hit $29 trillion by 2024.

When global debt starts suffocating economic growth and liquidity, we’ll face more volatility than ever.

Debt is a huge a drag on the economy. It’s especially true after it rises over the 80 to 90% of GDP level.

US government debt is now 106% of GDP. And if you add state and local debt, total government debt is over 120% of GDP.

Shades of Italy and Greece.

Off-Budget Deficits Congress Glosses Over
Congress wants you to believe last year’s deficit was $779 billion. They don’t mention the off-budget deficit, which adds a lot to total debt.

It is not easy to find that number, but fortunately, my friend Michael Lewitt writing in The Credit Strategist brings us this pithy note:

Our current prosperity is built on an explosion of debt; it is therefore unsustainable. The US added roughly $1.3 trillion of GDP in the fiscal year that ended in September but also added $1.271 trillion of debt. Interest rates, while still running well below real-world inflation, are rising in a heavily leveraged economy. The $1.271 trillion increase in federal debt was nearly $500 billion or 39% higher than the official annual deficit of only $779 billion, which means that politicians are keeping significant amounts of debt off-balance sheet. I don’t know who they think they’re fooling, but they aren’t going to be able to keep this con game running much longer. Over the past five years, the official deficit was reported as $2.977 trillion whereas the federal deficit grew by $4.777 trillion, meaning that 38% of the actual shortfall was hidden by our feckless leaders. And all of these figures do not include trillions of more dollars of off-balance sheet entitlement obligations promised by the government to future retirees and other voters.

That deficit was for fiscal year 2018, which ended on September 30. The CBO’s latest projection is we will add close to $1 trillion of debt in 2019 and over $1 trillion in 2020.

https://seekingalpha.com/article/4221893-liquidity-bubble-pops-face-biggest-crisis-yet