The economy grew steadily. Debts increased rapidly.
Written by Wolf Richter of Wolf Street.
U.S. government debt is measured in “current dollars,” meaning it is not adjusted for inflation. Therefore, we compare it to GDP in “current dollars”, which is not adjusted for inflation. The hope is that current dollar-denominated GDP will grow faster than current dollar-denominated debt, reducing the burden of debt on the economy and reducing the astronomical debt-to-GDP ratio. But that’s not the case.
GDP in current dollars grew 5.8% year-over-year in the fourth quarter, which was pretty good, even though interest rates were over 5%. However, current dollar-denominated government debt has increased by a whopping 8.2%.
As a result, the debt-to-GDP ratio, which had already risen over the past two quarters, worsened to 121.7% at the end of the fourth quarter.
The jump to 133% in the second quarter of 2020 was primarily due to GDP collapsing and, to a lesser extent, debt starting to soar. The debt-to-GDP ratio then declined as the economy jumped out of the hole and grew faster than debt until the first quarter of 2023.
But in the second, third and fourth quarters of 2023, despite decent economic growth, the economic situation took a turn for the worse as governments opened the spending floodgates and piled up debt at an alarming rate. I went in the direction.
This is the economic scale: Current dollar GDP (not adjusted for inflation) rose 5.8% from a year earlier to $27.9 trillion in the fourth quarter, according to the “Year of the Recession That Didn’t Come,” released Thursday by the Bureau of Economic Analysis. It has increased by 27.6% over the past four years.
And this is the size of the US debt: 34 trillion dollars by the end of 2023. And we marked this day here by tearing our hair out.
Debt increased by $2.58 trillion, or 8.2%, in 2023, a particularly large increase outside of a recession. This borrowing also represents a huge amount of fiscal stimulus given to the economy, and with this kind of fiscal stimulus pouring in around the world, any kind of economic slowdown, much less a recession, is virtually impossible. Is possible.
Over the past four years, the debt has increased by 46.5%, but the economy has grown by only 27.6% (both in current dollars). The green label in the graph is the technical term for what’s going on here, and we’ve been using it for years, first as a joke, but in recent years it’s become a reality.
Enjoy reading and supporting Wolf Street? You can donate. I appreciate it very much. Click on the beer and iced tea mugs to see how.
Would you like to receive email notifications when new articles are published on WOLFSTREET? Sign up here.