Debt/GDP or Debt/GNP are either of them a good metric?

We hear about Debt/GDP all the time (national debt/Gross Domestic Product; total output of the economy) and the standard argument is that we should be looking at Debt/GNP (national debt/Gross National Product; GNP strips out non-Irish domiciled output – what remains here).

The question should perhaps not be ‘which is better Debt/GDP or Debt/GNP’ it should be is ‘Debt/G-anything’ the relevant metric? There are a few reason for why GNP and GDP are both lacking, in fact it distorts a true view of our Deficit

1.    It’s a thing of the past – both examples are historical by nature, they change and that is why any conversation on GDP and GNP is a constantly movable feast. Imagine if I asked you to drive across the country and describe the scenery to me, but you could only do so by telling me what you saw in the rear-view mirror? That is what GDP & GNP are about. Debt/GDP levels in Europe soared after …

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Scary Chart: US Private Debt to GDP

The US Private Debt to GDP chart is one that concerns me, it spells ‘deleveraging for many years’ in big bold letters. You don’t need much more than this to get the picture. With households so heavily indebted – and consumer spending being the driver of the US economy, it is now wonder that QE2 and whatever else they try is to be expected.

The trajectory of the chart after major financial crashes (remember this is the ‘worst since the great depression’), has a clear path, and for that reason it is likely that we’ll see deleveraging continue on the downward trendline you can see forming above.

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Is Britain the Next Greece?

Economist Richard Wolff compares economic forecasting to palm reading, before predicting himself that Britain will be the next victim of the global recession, citing that the average British family currently faces a debt amounting to 170% of its annual income.

The full video is more about capitalism in its current brand, the fascinating thing is that Wolff is neither an Austrian nor a Keynesian, he isn’t freshwater or saltwater, he thinks that both Hoover and FDR didn’t find the right solution, that WW2 was the answer (albeit a terrible one). This is a video that is absolutely worth watching.

The full version is available on Fora (a site well worth bookmarking!)

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Inflation… 'when' not 'if'…

The endurance of gold at above $900, rising oil prices, the weakening dollar and a Treasury/Fed combo that is increasing the money in circulation will lead us where?

I hate to harp on about inflation but it just doesn’t seem that further down the line we won’t see a lot of it, the market is pricing it in, the yield curve is suggesting it, and yet it remains on the periphery of commentary for the most part.

One important statement in this talk is the bit where one of the guys talks about the fractional reserve system and the multiplier effect that can turn 800+ billion into 8 trillion.

When we are advising longer term fixed rates to avoid the pain this will bring (and it won’t be in 09′, it will be 10′ or 11′ but rest assured it will come), bear in mind that in the short term you will pay more than you have to, but that when everybody else is hurting you will be insulated. The reason for fixing now rather than later is that the …

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Inflation… ‘when’ not ‘if’…

The endurance of gold at above $900, rising oil prices, the weakening dollar and a Treasury/Fed combo that is increasing the money in circulation will lead us where?

I hate to harp on about inflation but it just doesn’t seem that further down the line we won’t see a lot of it, the market is pricing it in, the yield curve is suggesting it, and yet it remains on the periphery of commentary for the most part.

One important statement in this talk is the bit where one of the guys talks about the fractional reserve system and the multiplier effect that can turn 800+ billion into 8 trillion.

When we are advising longer term fixed rates to avoid the pain this will bring (and it won’t be in 09′, it will be 10′ or 11′ but rest assured it will come), bear in mind that in the short term you will pay more than you have to, but that when everybody else is hurting you will be insulated. The reason for fixing now rather than later is that the …

Read More →