First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called “aggregate demand” and a blatant stab-in-the-dark called “potential GDP”.I don’t. So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007—debt versus production.Not surprisingly, we have racked up a lot more debt—notwithstanding all the phony palaver about “deleveraging”. In fact, total credit market debt outstanding—-government, business, household and finance—-is up by 16% since the last peak—from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak (2001); and that was up 103% from the business cycle peak before that (July 1990).Yes, the debt mountain just keeps on growing. It now stands 4.2X higher than the $13.6 trillion outstanding just 24 years ago.
Click for Full Text!