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Chart Of The "Keynesian Normal": America's Tragic Divergence

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There is a saying that debt can't buy growth. When it comes to the US, that saying is absolutely correct: only lots and lots of debt can "buy growth."

As the chart below shows, since officially leaving the gold standard in 1971, annual GDP growth has outpaced the growth of federal debt on just 11 occasions, and of these half were during the dot com boom of the late 1990s. Obviously this chart would look far worse if instead of just federal debt - which is merely a portion of total we used total credit market debt (which is some three time greater). But for illustrative purposes, merely Federal debt will suffice, because the parabolic "endphase" divergence between the two indexed lines - one showing GDP growth, the other debt growth - says more about the final outcome of this tragic Keynesian experiment than 1000 meandering, meaningless, trolling essays written by Nobel-prize winning economists ever could.

As Brent Johnson at Santiago Capital notes, "We are now supposed to believe that during the biggest credit crunch of the last century, the economy is going to start growing FASTER than debt & reduce this spread?"

But don't worry, even as America drowns in debt, we really owe it to ourselves, even if in a few years all of it will be held by the Federal Reserve.


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