Last week Mr Obama went on what some might call a victory lap, crowing about his Administration’s economic accomplishments, all but calling those who criticise the current state of the American economy “liars”. Hmmm. Why not stop with the name calling, please?
Sure, GDP is positive, but eager to distribute the Happy News Mr Obama neglects to look at the bigger picture. The chart below shows two very, very different eras in American history. One characterised by relatively fast economic growth, and other by relatively slow. Annual percentage change in nominal GDP is presented in black (left axis), with America’s debt / GDP ratio presented in blue (right axis). As usual with FRED data, periods of economic recession are noted by vertical gray bars.
We can see that when American debt / GDP was below 50% economic growth surged, averaging some 7.9% pa (in nominal GDP) from the period 1967 to 1989. From that point on US debt / GDP breached above 50%, and GDP began to slow. From 1989 to 2015 US GDP averaged 4.9% pa, while the debt / GDP ratio surged to well over 100%, where it remains today.
And the period after the nation (allegedly) emerged from The Great Recession we see GDP running at roughly 3.5% pa. And, by the way, appears to be slowing even further, as US debt hits record levels of some $19T.
In fact this is the tenth straight year of sub par economic growth in The United States. Now the data tells a rather different picture, doesn’t it?
Mr Obama may wish to ignore the national debt, but its starting to attract bipartisan attention, with some even suggesting America is rather broke. So how did we come to this? Some blame a surge in social spending, while others suggest its all down to out of control military spending, but regardless, interest payments on the national debt may soon eclipse the military budget. Even the Congressional Budget Office is concerned about the mess Mr Obama’s profligacy has created.
So perhaps the problem will fix itself? Like a failed South American nation, some warn that America’s debt / GDP ratio may hit 150% by 2040. Just like Japan, it would seem. Another nation with anemic economic growth, disinflationary forces and debt to GDP well above 200%.
Are things really that rosy in The United States? Or are politicians doing what they usually do — deceive?