The red queen race of debt – US public debt set to pass US annual GDP. The 100 percent GDP to public debt threshold is quickly approaching.


People may not even realize that during the Great Depression, US Federal debt as a percent of GDP did not even reach 40 percent.  Part of this was because the size of government was much smaller in military, public services, and entitlements.  The only time in history that the US as a whole spent more than it produced was during World War II. That is the only time but we are now quickly approaching the 100 percent range of federal debt to GDP as a percentage.  The US Treasury and Federal Reserve are aiming to pull the economy out of the Great Recession by going into further debt.  Think about this for a few minutes.  What led the US into a major financial crisis were banks allowing people to go into too much debt buying homes, cars, and other things they clearly were not able to afford.  While the banks were bailed out courtesy of taxpayers, the central banks are aiming to go deeper into debt just to create additional bubbles.  Bankers are loving this and their profits reflect this change.  Yet as many chastise economies around the world for going too deep into debt it is likely we will hit the 100 percent threshold next year.

Take a look at the amount of debt relative to our nation’s production:

us public debt vs gdp

Does the above even look healthy to you?  Starting in the 1970s the US government thought it would be smart to simply “deficit spend” and put all expenses on the US credit card.  So for a few decades this worked but now what?  If debt was the solution to everything then why not give every American an open ended credit card with $1 million dollars pre-loaded?  It would be simple given most Americans already have a credit card.  Yet wealth is reflected by what can actually be produced and the Federal Reserve simply printing money dilutes the currency of the US.  Common sense would tell you this.

If you want to see how much public debt is out there let us take a look at it to the penny:

us public debt to the penny

Source:  US Treasury

As of December 14 the total public debt outstanding to the penny was $13.85 trillion.  Put this in context with the current GDP figures:

US gdp data

Source:  BEA

The third quarter US GDP figures stood at $14.75 trillion.  The current difference amounts to roughly $900 billion.  But given the current tax bill being pushed and also quantitative easing ($600 more billion) it is likely that this unfortunate milestone will be passed in 2011.  What is currently happening on a global scale is similar to someone paying off today’s credit card bill with another credit card.  How is this sustainable in the long run?  It isn’t.  But bankers are loving it at the moment because they can speculate and gamble on a global scale with easy access to cheap debt.  Just look at Goldman Sachs recent profits:

goldman sachs profits

So far Goldman Sachs has made $3.2 billion in profits in 2010 merely through their investment banking activity!  What is even more stunning is they have made $20 billion gambling through the stock market casino.  Ask yourself this, how is it that these bailed out banks are making so much money when no jobs are being added and wages are stagnant or falling for most Americans?  This is the ultimate crony move of transferring wealth from taxpayers to those in pinstriped Tom Ford suits who merely speculate in a global form of Las Vegas.  Even when you look at global GDP you realize that things have actually pulled back:

world gdp

Source:  World Bank

And we already know that the actual US consumer is seeing their credit lines shut down.  Just look at JP Morgan for example who is now going to charge people for checking accounts without a certain minimum when the bank they inherited, Washington Mutual used to offer free checking for life.  Their balance sheet reflects a desire to screw the customers that actually saved their institution and actually need help today given the economy!

jp morgan income

As you can see, credit card income and mortgage fees have fallen because Americans are unable to borrow given the current economy.  Yet they are still pulling in $1.4 billion in investment banking fees even though they were bailed out under the auspices that they were a commercial bank meeting the needs of Americans.  They are nothing more than a glorified hedge fund that provides checking and the illusion that they are a typical old school bank.  Even here they can’t resist the temptation to rob their customers further.

Many of the world central banks are going into deeper debt doubling down on a global scale.  The US isn’t the only country in massive debt:

central government debt gdp

I think the trend is rather clear.  Hitting the 100 percent public debt to GDP ratio is not a good thing.  I know the central bankers want to make this seem like some sort of free handout and that all of a sudden things will turn around just because the printing presses were turned on.  Does anyone really believe this?  The working and middle class understand this new global plutocracy and basically we are turning the world into one giant cheap labor marketplace where banks can exploit the population for every ounce of wealth they may have.  They don’t want a middle class because that would mean actually having a fairer distribution of income.  Take a look at where Wal-Mart now makes their profits:

walmart sales

Nearly 25% of Wal-Mart sales now happen internationally.  The central banks would love nothing more than to have a homogenous global market where they can raid the entire global population and yank any profit the public may have.  This isn’t some conspiracy but a coordinated attack on the working and middle class everywhere.  Even a recent Wikileaks shows this international coordination:

“(Guardian) The Bank of England governor, Mervyn King, was so concerned about the health of the world’s banks in March 2008 that he plotted a secret bailout of the system using funds from cash-rich nations, according to a US embassy cable released by WikiLeaks.

Six months before the world financial crisis reached its peak, forcing taxpayers to rescue collapsing financial institutions, King told US officials in London that the UK, US, Switzerland and Japan could jointly enable a multibillion-pound cash injection into global banks, overriding the “dysfunctional” G7 nations.

The leak may allow King to claim that he – rather than Gordon Brown – was one of the brains behind the bailout of the banks, which took place in October 2008.

According to the cable, King told Robert Tuttle, the US ambassador to Britain, and the treasury deputy secretary Robert Kimitt, who was visiting London, that there needed to be a “coordinated effort to possibly recapitalise the global banking system” as well as a way to rid the banks of the toxic loans on their balance sheets.”

All this was happening when central banks were telling us nothing like the above was occurring.  Do you still trust these people?  If you do then you will have no problem believing the US GDP to public debt ratio of 100 percent is no problem.

My Budget360