With a continuing resolution for $1 Trillion passed this week, which will fund the government for 5-whole months, there seems to be little consideration given to the disconnect between increase debt levels and slower economic growth. The chart below shows the growth of total debt as compared to GDP growth since 1966.
Not surprisingly, as the system becomes inherently more leveraged (as corporations issue debt to buy back stock and investors lever up) there rise in asset prices is not surprising.
The problem, however, is that rising asset prices and surging debt levels, despite rumors to the contrary, do not translate into stronger economic growth. As shown below, the transition to leverage starting in the early 80's was the turning point for the growth rate of the economy.
To put this into economic terms, it currently requires almost $4.00 of debt to create $1.00 of economic growth. This is a problem when 70% of the economy is driven by consumption and there is a finite limit to the amount of debt that can ultimately be taken on by households.
I know. It's crazy talk. But I see two options for Congress here:
If you want 3-4% economic growth in the future, you can start taking some fiscal responsibility and pay attention to the “debt elephant” in the room.
Or, you can pass a health care bill that will hit taxpayers for another $250 Billion in subsidies over the next decade along with continued high costs of insurance for individuals.
One of those isn't going to work.
In the meantime, here is what I am reading this weekend.
Tax Plan/Politics
Do Tax Cuts Pay For Themselves by Caroline Baum via MarketWatch
Here Are The Major Health Care Bill Changes by Bob Bryan via Business Insider
The Trump Empire Expands by Nomi Prins via The Daily Reckoning
$5.5 Trillion – The Cost Of Trump Tax Plan by Committee For A Responsible Federal Budget
Trump: Peddling Reagan Era Snake Oil by William Greider via The Nation
Trump's Tax Plan Not So Good For Middle Class by David Cay Johnston via Daily Beast
Only Real Growth Will Down The Deficit by Stephen Moore via The Washington Times
Yes, The u.s. Can Afford Tax Cuts by Tyler Cowen via New York Post
Good & Bad News About Trump's Tax Plan by Charles Gasparino via New York Post
Tax Lies For The Gullible by Thomas Sowell via IBD
Are Trumps Tax Cuts Worse Than Reagan's by Steven Rattner via NYT
Tax Plan Would Blow Up The Deficit by Rob Garver via Fiscal Times
Art Laffer's Theory Of Tax Cuts Comes Alive by Peter Baker via NYT
Why Tax Revenue Projections Are ALWAYS Wrong by Richard Rahn via Washington Times
With This Budget Deal – Swamp Wins by IBD
