January 2011 Update:

As of October 2010, the U.S. Total Debt (public, corporate and personal) is over $60 trillion, which is $186,000 per person or $750,000 per family. The total debt increased by $3 trillion, about eight times faster than GDP.

..."Normally in a recession, you'd expect to see total debts fall. But not here. Our government believes it can borrow an unlimited amount of money and then print more to pay it. That's like lighting matches next to gas tanks.

We can't solve our country's problems with more debt. Why not? Diminishing returns s one of the core ideas of economics our leaders have never considered. As the debt load grows, it takes more debt each year to produce growth. In 1960, it took roughly $2 in new debt for each $1 in growth. By 1980, it took $2.25. By 1990, it took $3. By 2000, it took $3.50 in additional debt to finance $1 in additional economic growth. It now takes $5 in new debt for each $1 in economic growth.

As you will hopefully understand intuitively, we can't sustain this trend. But that won't stop our politicians from adding, massively, to our country's debts. And eventually, people will figure out we can't ever repay these debts. At that moment, the value of the dollar will simply disappear.

Once a country has used up all its credit, its Treasury Secretary begins to say things like, "We will never devalue..." That's a sure sign devaluation is right around the corner. And even though I knew it would happen here... I'm not happy to see it. It means terrible things for our country. I hope you've already acted to protect yourself."... writes The Daily Crux

What really drives the Economy
Article excerpts from the August, 2007 issue of Trader's Tips

01.07.11 Update - Debt roof raised after pressure
The Republicans gives in after pressure from finance minister Timothy Geithner and opens up for administration to take on more loans.

January 2010

SocGen's presentation on debt: "Prepare Yourself For The Worst Case Scenario"

The chart below (courtesy of Deutche Bank) shows a US Debt to GDP comparison between 1929 and now.

Deutche Bank's view:

..."Figure 1 and Figure 2 help us understand why we are entering into unknown territory in terms of Developed market debt. These charts simply show the Debt to GDP ratio of the US and the UK. The Government part of the deficit is starting to rise sharply in both regions and although it looks within the range of historic observations we have to remember that Governments have implicitly and explicitly backed the debt of other parts of the economy. This makes Government liabilities potentially much larger. The hope is that growth rebounds strongly enough for the Debt/GDP ratio to fall naturally over time. Such a scenario would also require yields to stay low to facilitate such an adjustment. All we can say is that there are risks that the deficits of such indebted countries at some point appear unsustainable to the market. This is when far more difficult decisions than those made in 2009 would have to be made."...

us debt to gdp

From the April, 2009 update:
As pointed out in an earlier published article about the 60 year Kondratieff Cycle the purpose of the Winter part (from 2000 --- >) of that economic cycle, is to cleanse the economy of debt via payback, liquidation and usually bankruptcy. This process creates tremendous stresses to the economy and financial system. The next Spring should again bring growth and prosperity. As the below chart shows, for the first time in many decades, consumer debt has actually turned down, reflecting the ongoing cleansing process in this current Winter cycle.

consumer debt

Chart courtesy of elliottwave.com

From the May 2008 Update
  • 2007 total debt per person was $175,154, up $13,065 from $162,125 in 2006. This compared to $29,722 in the late 50's, measured in inflation-adjusted 2007 dollars.

  • Last year's debt per family of four increased by $33,781, to $700,616. 2007 total debt of $53 Trillion was 11 times higher than the $5 Trillion debt in the late 50's.

    - 2007 total debt increased $4.3 trillion (up 8.9%)
    - Federal government debt (incl. added debt owed trust funds) increased $549 billion (6.3%)
    - Household debt increased $877 billion (up 6.8%)
    - Business debt increased $1.1 trillion (11.7%)
    - state & local government debt increased $184 billion (up 9.2%)
    - Domestic financial sector debt increased $1.6 trillion (11.1%).

    Each sector reached a new, all-time high. As of 2006, 26% ($1 Trillion) of the total debt increase of $3.9 Trillion was owed to foreign interests, up 11%.
    Source Michael Hodges

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