There was an interesting chart put up the other week on Nathan’s Economic Edge blog (H/T Chris Cook).
We’re not sure how accurate its assertion is. However, if what it implies is true, the consequences are worrying. The chart, as seen below, essentially reflects the productivity gained from the addition of $1 of debt into the US debt-backed money system. It does so, says the blog, by taking the change in GDP and dividing it by the change in debt. The data itself comes from the US Treasury’s latest Z1 release.
And, as can be seen from the chart, the recent trend has seen the productivity plunge through the zero-rate [click to enlarge]:
Nathan’s blog explains:
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!
It’s a point which has also been picked up by Paul Kedrosky, over at Infectious Greed.
The author’s feeling, though, is that the data should not be taken out of context, given GDP growth leading up to the crisis was unprecedented. As he explains:
But here is the thing. The growth in debt during the last two decades — both amount and rate — was unprecedented. We should expect a significantly declining marginal contribution to GDP , with no mystery or phase transition required. Matter of fact, in recessions before 1970 we saw GDP/debt declines to zero and below, just like we’re seeing today. Now, that doesn’t make the debt okay, because it isn’t and wasn’t, but it also doesn’t mean that, after delevering and time, debt can never again by deployed for profit in the economy.
Furthermore, it’s not like economists would have expected anything other than diminishing returns, he argues :
There should be no doubt that infinite amounts of consumer debt won’t generate any higher gains for a society than will debt for a company. As a matter of fact, declining returns at the margin are guaranteed, and should come as no surprise. After all, if we could just lever our way to a sustainable GDP of 2x current levels then we should just do it. Why screw around?
Nevertheless, it’s still a scenario that’s unlikely to reassure US debt-watchers.
What’s more, as the WSJ wrote on Friday, it means the US Treasury can hardly afford to let interest rates climb higher as it would, amongst other things, ‘jack up’ the government’s borrowing costs.
Weak Treasury auctions reflect that investors may already be turning their attention away from Europe and over to the US, and its ability to refinance its borrowings.
Demand for a $44bn 2-year note auction on Tuesday, a $42bn sale of 5-year debt on Wednesday and a $32bn 7-year note sale Thursday was all notably weak.
And yet the US has only just begun on its yearly refinancing journey. Diapason Commodities’ Sean Corrigan sums up the situation being faced:
Next quarter, the US Treasury must refinance $1.14 trillion in maturing debt + interest payments and another $630bln during the following three months.
The last couple of Treasury auctions have not been good; the Fed has supposedly finished its QE progr amme; China is being antagonised – not a healthy mix. As the attached shows, we are also fast approaching the neckline of a poten tial significant inverse H&S on T-Bonds, one whose breach should , theoretically, project all the way up to near 7% yields, the bear flattening effectively unwinding the whole rally from the previous cyclical top in early 2000.
This would not be too pretty for equities and could strengthen the USD further, hitting CMD Ts UNLESS the Fed steps back in to try to ease the strain – in w hich case the USD implications look dire. Somethin’s gotta give.
Here, meanwhile, is what that Q1 debt rollover — which seemingly originates from the Northern Rock school of finance –looks like this year:
Related links:
Testing the AAA boundaries – FT Alphaville
That European funding problem, charted - FT Alphaville
New (negative) territory - FT Alphaville
The negative swap time-warp- FT Alphaville
沒有留言:
張貼留言