GDP Rose by $1.0 Trillion in 2018, US Gov. Debt by $1.3 Trillion

Where would GDP growth be without federal borrow-and-spend?

So the dreams of 3%-plus economic growth in 2018 were fulfilled, after tax cuts and ballooning federal deficit spending, which acted as a huge stimulus: In the fourth quarter, the economy as measured by inflation-adjusted GDP grew by 0.55% from the third quarter, not annualized (we’ll get to the “annualized rate” in a moment).

This brought GDP growth for the entire year 2018 to 3.1%, according to the Bureau of Economic Analysis this morning. This places the year ahead of the top years since the Financial Crisis:

The BEA also reports – this is what you see in all the headlines though it’s the most convoluted and somewhat misleading way of presenting GDP growth – the current quarter’s growth rate but extrapolated out over an entire year; so what this Q4 growth rate of 0.55%, mentioned above, would mean for the whole year if the economy had grown for an entire year at the same rate. For Q4 this seasonally adjusted, inflation-adjusted “annualized rate” of growth was 2.6%.

This annualized Q4 growth rate was decent but nothing to write home about. It was somewhere in the middle of the range since the Financial Crisis. The two fastest-growth quarters by this measure since the Financial Crisis were both in 2014 with 5.1% and 4.9%. Before the Financial Crisis, annualized growth rates were as high as 7%. And today’s GDP data summarizes the decent-but-slowing-growth pattern we have noticed in other data:

Today’s GDP release should have been reported as “advance estimate” on January 30 but was delayed due to the government shutdown. Today, the BEA was supposed to report its revised data of GDP, the “second estimate.” Today’s report is, according to the BEA, the replacement for the “second estimate.” The third estimate, based on more complete data available by then, will be reported on schedule on March 28.

GDP not adjusted for inflation

In the fourth quarter, GDP not adjusted for inflation (“nominal” GDP) rose at an annualized rate of 4.6%. This brought nominal GDP growth for 2018 to 5.2%:

Finally, GDP is measured in dollars that are spent, invested, or blown by economic players (consumers, businesses, and governments) in a given time period in the US. However, illegal spending and investing — such as on controlled substances, including imports, exports, production, retail sales, wholesale trade, investment in inventories, and the like – are hard to measure by standard methodologies on a quarterly basis because these enterprises and individuals don’t respond properly to government surveys on which much economic reporting is based.

So this dollar measure of GDP is incomplete. Nevertheless, nominal GDP, not including services such as prostitution and goods such as narcotics, increased in 2018 by $1.0 trillion to reach $20.5 trillion in today’s dollars:

Where do these dollars in GDP come from?

Limited as GDP measures are, they do not include where the dollars came from that were invested, spent, or blown. Governments play a large role in GDP. Just the federal government alone is a major contributor behind GDP. Everything it spends and invests in the US goes into the GDP formula. What does not go into GDP is where those dollars came from. Much of it came from tax revenues, fees, and other receipts. The remainder came from borrowing.

In the calendar year 2018, the federal government’s debt grew by $1.4 trillion, to end the year at $21.97 trillion. If you exclude the distortive effects of the last debt-ceiling fight, the increase in 2018 comes to around $1.3 trillion.

Most of the additional borrowing of $1.3 trillion was added to GDP and therefore to GDP growth. But GDP growth in current dollars totaled just $1.0 trillion. Without that additional federal borrow-and-spend, GDP growth would have been negative.

Even the BEA made reference to it when it listed “federal government spending” as one of the primary contributors to GDP growth. So I will leave you with this chart of one of our primary drivers behind GDP growth (updated through February 28, 2019):

“In 30 years, I’ve never seen anything like this”: CEO of warehouse operator Pacific Mountain Logistics. Read…  Inventory Pileup Sounds Alarm for Goods-Based Economy

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  103 comments for “GDP Rose by $1.0 Trillion in 2018, US Gov. Debt by $1.3 Trillion

  1. Nick says:

    If the government was run like a publicly traded entity they’d be declaring bankruptcy. America has become an absolute joke. We can’t even print our way to prosperity lol.

    • Nat says:

      While this may very well be “too much deficit spending” especially as we are supposed to be in the good times, the fact is the way US money exists is as backed by debt. So money in existence must largely be proportional to debt (not necessarily the government’s debt, but someones) unless there is a major swath of bankruptcies proportional to the scale of GDP or some sort of debt Jubilee then the total amount of debt must climb exponentially to accommodate an exponentially growing economy.

      The only options are: 1. major defaults or debt jubily, 2. Debt piling up someone(s) balance sheet (where the least damaging or dangerous one to pile it up on is the government’s), or 3. to massively confiscate enough savings and earnings (much higher income tax + a new significant wealth tax) and redistribute them to the weaker parts of the economy as to be able to keep the total amount of dollars in existence roughly constant. Those are your only choices, and it is precisely why comparing the situation to a private entity is completely ridiculous: private entities are not closed systems, they can get money from elsewhere and can be debt free – the US can export dollars and debt to some degree but for the most part its money supply and debt must largely balance out and exist under the same roof. If the debt stops growing the so does the economy and debt always grows faster then the economy (minus defaults). This looks nothing like a private entity’s finacial situation and thus there is no comparison.

      Yes I am all for getting to a less stupid monetary system, but until then this is what we have and the choices I listed above are all that exist. The balanced budget free of massive defaults and/or heavy taxes and redistribution with a growing economy that you seem to pine for is literally mathematically impossible.

      • Bobber says:

        You number 2 doesn’t fix or re-balance anything. It’s a mere extension of the problem.

        • Nat says:

          Never said it was a fix, just said if you aren’t doing number 1 or number 3 then you HAVE to do number 2. Its not a solution, its a mandetory action in light of refusing the other options which is what is happening right now.

      • JZ says:

        Government Debt to GDP was pretty high after WWII, they brought it down. How? Force you to buy treasuries at yields below inflation for 30 years and it would do wonders. Thought about this option?
        The games these people play are always long term accumulating small increment, stuff like Default or “massive” this “massive” that will NEVER happen. It would always be there, like a chronic disease, you can live but you will never feel good, and 30 years later, you realized what happened and it would next generation’s world. You will be ignored and the game rules change to another direction, again accumulating small steps slowly and unnoticeablely.
        In Electrical Engineering, the order of a system is determined by how far “back” does the output depends on input and state. If you only react
        to what happened to yesterday or last year, you are low order system. These folks doing global dominance and wealth transfer are high order systems looking back generations. The answer from high order systems is NEVER obvious to low order systems.

        • max says:

          In 1944, government spending at all levels accounted for 55 percent of gross domestic product (GDP). By 1947, government spending had dropped 75 percent in real terms, or from 55 percent of GDP to just over 16 percent of GDP. Over roughly the same period, federal tax revenues fell by only around 11 percent. Yet this “destimulation” did not result in a collapse of consumption spending or private investment. Real consumption rose by 22 percent between 1944 and 1947, and spending on durable goods more than doubled in real terms. Gross private investment rose by 223 percent in real terms, with a whopping six-fold real increase in residential- housing expenditures.
          The private economy boomed as the government sector stopped buying munitions and hiring soldiers. Factories that had once made bombs now made toasters, and toaster sales were rising. On paper, measured GDP did drop after the war: It was 13 percent lower in 1947 than in 1944. But this was a GDP accounting quirk, not an indication of a stalled private economy or of economic hardship. A prewar appliance factory converted to munitions production, when sold to the government for $10 million in 1944, added $10 million to measured GDP. The same factory converted back to civilian production might make a million toasters in 1947 that sold for $8 million—adding only $8 million to GDP. Americans surely saw the necessity for making bombs in 1944, but just as surely are better off when those resources are used to make toasters. More to the point, growth in private spending continued unabated despite a bean-counting decline in GDP.

          economist Robert Higgs points out, “It was no miracle to herd 12 million men into the armed forces and attract millions of men and women to work in munitions plants during the war. The real miracle was to reallocate a third of the total labor force to serving private consumers and investors in just two years.”

        • Nat says:

          “Force you to buy treasuries at yields below inflation for 30 years and it would do wonders. Thought about this option?”

          That is just a fancy version of option 3: taxation for redistribution. In this case the effective taxation is just made less obvious by the fact that “you will be paid back” and that most people don’t reflect on what they will be paid back in regards to inflation over that time. The difference between what is paid back and the purchasing power lost to inflation is just a tax.

        • Paul says:

          You might want to check what top marginal tax rates were back then as well.
          I believe they were like 90%!
          The fact that people now find the suggestion of much higher top marginal rates shocking simply shows how short their memories are as far as us older people are concerned, and how little younger people know about the past.

        • JZ says:

          @Nat, sure, call it what ever you want, but it will subtle, hard to perceive by the naked eye, created by ph.d running 30 year simulation using game theory models, and most importantly,
          it won’t be he FED, but will be government coercive force.
          If we are all analyzing money supply, velocity, different asset classes, we are in the old game of the Central Banks. When central banks fail, government runs will take over the market and allocate resources, savings, loans.
          They will ask your 401K to buy entirely treasury bonds, they will tax your savings, and it will be politically acceptable in the short term and 30 years later, we savers will be robbed empty and Debt/GDP will come down.
          Now I understand why Jim Rogers is in Singapore.

        • Bobber says:

          Incremental is the goal of the Fed, but I wouldn’t count a 300% rise in stock market averages in 10 years as incremental. I wouldn’t count the rise of $1T-$2T deficits as incremental. These are signs that things are out of control.

          In my mind, the Fed is fishtailing the car on icy roads. Incremental turns of the wheel aren’t going to work, regardless of the Fed’s intentions. The best thing the Fed can do right now is to let off the accelerator and let the car correct on its own.

      • Bankers says:

        -So money in existence must largely be proportional to debt (not necessarily the government’s debt, but someones)

        And so it is, base money supply is usually backed by government debt as an asset. Broader money is backed by the asset side of commercial bank balance sheets, and so on.

        – unless there is a major swath of bankruptcies proportional to the scale of GDP or some sort of debt Jubilee then the total amount of debt must climb exponentially to accommodate an exponentially growing economy.

        Not so, bankruptcies can be at a continuous low scale of “creative destruction”, in fact need not even occur if a business makes profit, repays debt, then closes down due to lack of orders.

        Where do you get this exponentially growing economy ? GDP can increase in terms of more exchanges being done with the same base money without more debt. It can increase because prices deflate so giving a positive adjustment to real GDP (and making the amount of spending by government increase in real terms for the same nominal amount).

        Now if you subscribe to inflation targeting, bailouts, financial management of the economy, use of government for that, then you don’t have to make any apology for it – I do not know if you are saying ‘because a hard money system is not yet.. so forget about it, well these are the only options’. They aren’t, but in reality they are all we are likely to be offered as finance likes to expand its reach and influence, and so does government.

        • Nat says:

          “Not so, bankruptcies can be at a continuous low scale of “creative destruction”, ”

          True, but the rate of bankruptcies needs to be equal to or greater then the rate of debt-interest, which is compounding. The last time we had some fun with that option was 2008 and 2009. That toxic solution was worse than the three options I put up, and frankly if you are proposing we switch to that from now on indefinitely, I would choose death instead and I think many people would as well.

          “in fact need not even occur if a business makes profit, repays debt, then closes down due to lack of orders. ”

          No that doesn’t help. Because the debt created for that business has interest, so it is inherently greater than the money it put into the system. Just because the business paid off this debt doesn’t mean total debt in the system disappeared, it just means the interest residual it isn’t on that business’ balance sheet. Instead the interest residual has propagated off through the economy and is now on someone (or more likely many someones) else’s balance sheet. This solves nothing in terms of total debt to economy activity ratio, it is just a debt shell game that makes it very hard to figure out where that specific bit of debt has now propagated off to.

          “Where do you get this exponentially growing economy ? ”

          Okay, doesn’t need to be exponential. If the economy is growing then the debt needs to grow to keep up with it and debt always grows faster than the economic growth. Same problem just slightly slower rate of of an issue, still not a solution or an option different than what I provided.

          “Now if you subscribe to inflation targeting, bailouts, financial management of the economy, use of government for that, then you don’t have to make any apology for it”

          Inflation only “pays down” the debt if it is greater than the debt’s increase. This would not be an okay amount of inflation, it would be a very painful amount of inflation and lenders would respond by moving up the lending rates above the rate of inflation thereby making it all useless long term. Similarly bailouts just move the debt around, usually from the private sector onto the government’s balance sheet, that too is not a solution if you care about total debt load, its just another shell game. Etc…

          “‘because a hard money system is not yet”

          I am not a hard money person. I am more of an MMT person. The solution (IMHO obviously, and one which we won’t be allowed to have) is there needs to be a mechanism by which money not backed by debt gets injected into the economy. This has a tendency to be inflationary so one needs to keep a very rigorous control on this to keep things from getting out of hand, but it is infinitely preferable to have a bit more inflation (which also withers the relative rate of debt increase) and the ability to actually have enough money to pay off the debt instead of being forced to have forever growing debt, or much much higher taxes (including a wealth tax), or constant (unnecessary) bankruptcies.

        • JZ says:

          I am sound money person. We need discipline, NOT MMT + regulation + other mechanisms.
          Reason is simple —> I can NOT compete and do NOT trust with money manipulators, therefore I only trust/want money that nobody can do anything to it.
          Put this in another way. If you do NOT neuter the dogs, they will screw around no matter how much regulation and mechanisms you create to prevent them from doing so. Central bank is the dick of the rich and I am being screwed. Neuter is the principle and that is the only thing works.

        • Bankers says:

          I started writing and my answer to Nat became long, so I pasted it at


          to spare WS and anyone else :-l , but JZ has put down the abbreviated version.

      • bungee says:

        There is no political will for #1 no matter how much austrians and purists shamita believers wish for it. Not gonna happen. Although it may take that direction for a moment while they fire up the printer.

        #2 is hyperinflation. If these debts are always maintained at any cost and we dont default, eventually the risk will be transferred from the debts to what that debt is denominated in – in our case dollars. so the dollar will be what people think is risky. A debt based system requires confidence. Even though they trust the debt repayment, theyll raise their prices to offset dollar risk, which means more dollar debt which means vicious circle.
        (Obviously the best way out)
        The foreign public sector has stopped buying the debt, the private sector will turn one day as well. (Therefore buy gold now).

        In order to pay back in real terms through confiscation and taxation (your #3), we would have to return to whips and chains slavery and complete, perpetual police state. They’re tryin but its too hard. It would be a humanitarian nightmare. Better to just print till the wheels fall off, dragging it out as long as possible.

        Not disagreeing just rephrasing.

        • Bobber says:

          I wouldn’t be so sure about that. The governments have geared up for wealth taxes. The US, for example, has a massive reporting system that tracks your money around the world. If they want to tax your wealth, they know where it is and how much it is, unless you have it under the mattress or buried somewhere, where it will evaporate through inflation on its own. Failure to comply with the reporting results in massive penalties.

          Why do you say we need a police state to enforce a wealth tax that would impact less than 1% of the population?

          My opinion is a wealth tax or very high income tax rates on high earners, is headed our way. Democrats already have the House. They’ll have the presidency and perhaps the Senate soon because enough people are sick of the wealth and income inequality, which is at all-time highs.

      • 1. USG will be selling bonds 25% off because they can’t afford the interest. Let the foreign dollar holders take the heat 2. They will park bad debt off balance sheet, no acronym agency needed just do it (like the Iraq war) 3. Crashing the stock market will redistribute wealth and USG already sees this as the solution to question where does the money to buy our bonds (25% off) come from? The debt balloon will never burst it will create stasis, declining principle and interest. New supply at any variable to existing is overwhelmed. Check corporate bonds. It all goes higher until the underlying currency collapses.

    • Jack says:

      Yup I totally concur with you Nick.

      Read up on this if you like, the main article appeared at the London Telegraph But is behind a paywall, this extraction though from Melbourne’ Age is Not :)

  2. Bobber says:

    Thus, the slight GDP growth we’ve been seeing is a mirage. Stock prices are being propped up by GDP growth, and related corporate earnings, that are clearly unsustainable.

    As long as debt grows faster than GDP, we are making the bubble bigger.

    • Dale says:

      Don’t worry. The government will simply revise GDP higher. In 2018, GDP was revised $1T higher. The major component of this increase: income that the IRS could not tax, but believed existed. In other words, a growth chimera that cannot be verified, merely stipulated.

      Expect more ad hoc GDP revisions as necessary. Yes, prostitution and drug dealer income will eventually be added, as they already have been in the EU and UK.

      In government, desperation is the mother of invention.

    • DV says:

      Another issue is how much of it is “productive” economy?
      How much was added by manufacturing, mining, construction and agriculture? I would guess that it is well below 20%, so the productive economy continues to shrink in relative terms, if not nominally.

  3. Sporkfed says:

    Is the average term on government debt getting
    shorter ? If so, any rise in interest rates should
    be cause for alarm, right ?

    • yes and a drop in interest rates cause for celebration, however the Fed is victim to its own success, higher GDP, growth, new demand, higher rates. Normalize, rinse and repeat

  4. Mike Are says:

    As we all know, inflation is significantly under-reported by the government.

    Reported GDP growth is all due to inflation, no question in my mind.

    The deficit is one provider of the inflation, but not the only one. The government has been printing “money” now for many years backdoor.

    • rhodium says:

      If you go research prices for things in the 90s and then annualize an average inflation rate to what you pay now, even by a conservative estimate, for most items you will notice that the inflation rate for that item is usually about 1 percent above the government’s official numbers. I think real gdp probably has been growing slightly, but I guarantee you wages widely have not kept up because on a case by case basis I see little evidence that most people’s wages over the last 20 years have risen much above a 2% average annual increase most years with many seeing stagnant income for years in between occasional raises. A lot of professions are looking at like a 1.5% average if you can find reliable wage data going back a couple decades. The government’s wage data looks very much goalseeked to coincidentally match inflation so that they can say, hey at least you’re treading water… It’s bs though…

    • max says:

      GDP number is a worthless measure of personal well-being.

      If you do not include government spending in GDP, the economy will appear to be shrinking in the middle of a war or in a recession, even though the government is spending money hand over fist. From the point of view of politicians who wanted the government to spend more on goods and services (and yes, war), including government spending in GDP made total sense, because you want to be able to tell the citizens the economy is growing. Politicians have been spinning data and news for ages. Whether we’re talking about the results of reading sheep entrails or of dicing modern economic data, the information is spun to make the politicians look good. The controversial decision to include government spending in GDP was a political move made by President Roosevelt and the Democrats, who were in charge during the Great Depression.
      Within a short time, the inclusion of government spending in GDP was accepted as economic dogma by all major economic institutions. This of course made it easier to argue for and act on Keynes’s assertion that a government should spend during recessions, stimulating the animal spirits of consumers and driving up consumption. Who could even question such an assumption? Only troglodytes, the less-educated along, and other sorts of deplorables.

      “Ghana between 5 and 6 November 2010, its GDP increased by 60 percent overnight, turning it officially into a “low-middle-income” country. The reality had not changed, but the GDP statistics had, because the country’s statistical agency had updated the weights used in calculating the price index, and consequently real GDP, for the first time since 1993” (p. 31). After similar adjustments, Nigeria added a whopping 89 percent to GDP overnight in 2014, and Kenya added 25 percent (p. 32). Of course, there is no ‘objective’ platonic ideal of GDP nor how one ought to calculate it. Any definition can be justified depending on one’s worldview; hence, the politically expedient options seem to be chosen.

  5. Wisdom Seeker says:

    This is huge story. But current fiscal policy is not “borrow and spend”, it’s Print-and-Spend. Borrowing implies eventual repayment. World War 2 was a borrow-and-spend proposition. Tax-and-spend was the Republican jibe against the Democrats through the 1980s, but only because back then it was anathema in BOTH parties not to have a balanced budget. So the question was just whether to tax more or spend less.

    Borrow-and-spend only really got rolling in the 2000s under Bush 2. But it didn’t last too long, since the credibility of the “borrow” evaporated fast. The last attempt to tighten monetary policy in 2006-2008 ended in even more extreme borrowing, not financial sanity.

    Today, no one genuinely believes the federal debt will ever be paid down, just rolled over. So today’s deficit spending is just loose credit driving monetary inflation.

    • Kent says:

      With a federal debt of 21 trillion and a gdp of 20 trillion. Attempting to pay off the debt would require every single dollar being taken from every American. Leaving the entire country destitute. And, with all the money now gone, businesses can’t buy stuff and pay employees. So everyone starves to death. I’m not in favor of paying off the debt.

      • GuiriCateto says:

        You No.1 luxury boy like big quality.

        In Euro they say also “we don’t pay” and they say “then we taking your toys away”. Is true, then they give much money anyway. Is because they liking taking toys.

      • Wisdom Seeker says:

        Kent, it doesn’t work that way b/c GDP is a “flow” (money changing hands) whereas debt is a “stock”. GDP only gets counted when someone pays for something; action is required. But debt just sits there.

        There are actually far fewer than 20 trillion dollars in circulation or available as credit.

        Also, while we’re at it, if they did pay off the debt, the owners of the bonds would get that money, so the money wouldn’t be “gone”. Most of the owners are inside the US, so no, the money would not be “gone”. It would mostly be a massive rearrangement.

        • Jack says:

          Wisdom seeker

          You might care also to tell Kent that, the National Debt went up by 1.3 T to get a miserly 2.5% growth!

          In comparison in 2005 a Debt of 550 B bought the US 3.1% growth!!

          Mathematic are definitely Not working in the US’s Favour,

          alas there is still lots and lot of cheap Entertainment,
          cheap sugar,
          cheap drugs

          that can help alleviate the pain of thinking of all that ( including the proposed “ i am in favor of Not paying the Debt “)! :-)

  6. Inflation for Dec was sub 2% and for January 1.5%?? This is going to put some air under these numbers?

  7. Rob says:

    nominal gdp over 5% and trending high, Fed trapped at 2.4% EFFR…

    total debt is growing faster as well per the z1 survey

  8. timbers says:

    If low Fed interest rates and QE helps the economy, why can’t we see that in the GDP figures Wolf shows us, above? Why did the economy consistently under perform when the Fed cut rates and lots of QE?

    If high Fed interest rates and no QE is bad for growth, how come he had much higher growth when we had neither?

    If low Fed interest rates and QE don’t help the economy or grow it, why did Fed Chairman Powell tell Congress in his recent testimony the Fed needs zero interest rates and QE as options in fighting future recessions?

    How did we get to the point that our most powerful officials can make statements to Congress that are emphatically contradicted by the very data they point to, and tell Congress they must be able to use the very same polices in the future, even though the data clearly shows us that not only did these polices not work, but in fact made economic performance?

    • Bobber says:

      Great questions, but I think the Fed would say QE continues to do wonders, even though it requires “courage” to implement. Of course, this type of courage is equal to what the drunk employs when deciding to order his next drink.

  9. Howard Fritz says:

    What does this mean for the bottom line of corporate America?

    • Should be good. Economy is expanding, debt is expanding, inflation is low, and will rise based on reversion to the mean. Government plans to issue record debt. “They” have seen the recession coming and stepped on the gas at the right time. Major obstacle is populist uprising against corporate socialism, and repeal of tax cuts. Tax APPLE. Downside maybe the global consumer is tapped out, but new buyers (China) are ready to step up. China;s economy goes vertical like US in the 50s, becomes a powerhouse. Outliers like NK join the party. Too many goods maybe. New population explosion. Greenhouse gases reach critical, we all die.

  10. timbers says:

    * but in fact made economic performance *worse*?

  11. Tim says:

    It’s surely not just government boprrowing, though – financial ‘adventurism’ (public borrowing + private borrowing + cheap liquidity) has been creating “growth” out of thin air.

    And what about China? “Growth” may have been in the range 6.5-7% annually over ten years but, through those same years, borrowing has averaged 23% of GDP. Result: debt has quadrupled over a period in which GDP has doubled.

    • Lemko says:

      Growth is the new word for Inflation… They once upon a time called it Housing Inflation, it’s now called Housing ” Growth ”

      Housing Growth went up 10 % this year sounds a lot better to say then Housing Inflation went up 10 % this year. Pretty Soon the word Inflation will be outlawed in certain Countries Fiscal Policy’s. Real Growth can be around 1 % a year, 2 % is too much and would require debt involved… Anything above 1 % is debt fuelled in my opinion, that’s why Cost of Living and Inflation are far out pacing wage growth, debt is fast accelerating every year in most countries. At some point a business cycle will have to deleverage and have stagnant growth in order to lower debt levels, at least through out history that’s how it’s been. 70s and early 80s was a time of stagnation and late 80s early 90s was the explosion… Some are already predicting the next cycle we are about to enter will be slower and more stagnant then the last two

  12. sevensec says:

    Call it the “Escher Economy”. Like one of those M.C. Escher’s drawings with staircases and waterfalls, as you go ’round and ’round you get to enjoy the giddy impression of both a perpetual ascent into riches and a simultaneous cascading into limitless indebtedness. (Although if we really spent $1.3 trillion just to make $1.0 trillion, it does seem the “waterfalls” are now winning, doesn’t it?)

  13. elysianfield says:

    Default or Debasement?

    The Government will never default, as it does not have to.

    The significant debt (90% GDP) generated by WWII was mitigated over they years with insensible inflation, kept at the approximate 2% level, and into the late 60’s it HALVED the debt as a product of the GDP. The interest paid was with dollars cheapened by inflation and generated by the then increased productivity of the nation. Consider it as the magic of compound interest, but in reverse….

    The efforts of the Government in our new century is to try to replay the same gambit…inflation ostensibly kept “insensible” at 2%, but unfortunately, without the hoped for increase in productivity. This time those efforts will fail and the only recourse, other than default, will be a socially painful inflation…with all the concomitant ills and strife it will bring.

    Eventually, inflation will become evident and uncontrollable. We should, as the French General opined in the early 50’s in Viet Nam;

    “Be prepared to be shat upon from a great height”….

  14. Sreeni says:


    Shouldn’t the increase in assets on govt’s balance sheet be discussed as well as that offsets increase in debt. I am not sure of the exact composition of *assets* that govt accumulated. I am of the opinion that blood sucking student debt guaranteed by govt should definitely be counted though.

    • Wolf Richter says:

      Student loans is the government’s biggest financial asset :-]

      • Sreeni says:

        That is exactly my point. If we assume an increase of $100bn in student loan debt guaranteed by govt, the debt increase goes down from $1.3tn to $1.2tn. Things won’t look that bad in that case.

        • nick kelly says:

          But how could is that asset? On- line college Kaplan has a 40+ default rate on its loans. One can borrow many thousands to pursue cosmetology .

          Goldy might nibble in the 8 to 10 cents range if it can create a large secure campus where defaulters can be secured.

        • Wolf Richter says:


          This was a sarcastic remark because maybe one-third to one-half of those student loans — $500 billion to perhaps $750 billion and more as time goes on — will be written off eventually as a loss to the government because those folks simply cannot pay them. Just because it’s an “asset” doesn’t mean its worth its face value.

          And don’t forget about the “unfunded liabilities” — future obligations of the US government — that are not on the balance sheet either. The estimates are all over the place and go over $200 trillion at the top end. Who knows. But once you’re talking government assets and liabilities in balance-sheet terms, it gets very complicated in a hurry.

      • Dave says:

        Does that mean I should start thinking about paying mine back now?
        It’s been a while since I even looked at it.

      • MCH says:

        Wolf, please stop it… you are hurting my brain with highly technical terms like wazoo. I just feel so inadequate.

        I would be extremely curious to see what happens if we do raise the marginal rates. That and taxing investment income at a higher rate especially on a marginal level. How much would we reduce our debt I wonder.

  15. c smith says:

    “…they do not include where the dollars came from that were invested, spent, or blown. Governments play a large role in GDP.”

    I love the fact that these two sentences are juxtaposed.

  16. Keeper Hill says:

    It will never be paid back. Never.

    • Kent says:

      It’s not meant to be and there’s no reason to do so.

      • Bankers says:

        Government debt is founded on government revenue, which would be taxation. It would be interesting to look at the history of this, did government traditionally announce a new tax and immediately borrow against new future revenue, or did it wait to collect taxes and then borrow ahead some bit by bit as needed until it had built up a large rolling tab?

        The point is on whether it was ever meant to be repaid.

        To this you could add that there is an interest burden on the debt. That means the public is paying to service that interest, unless of course the interest payment is also borrowed and added to deficit. Even then that portion of new never to be repaid debt is simply decreasing the value of the dollar by dilution and placing the benefit of that in the hands of investors.

        If it is not meant to be repaid then it has no value but that interest portion, which is kind of odd seeing that the central bank uses it to back currency at full value. That means that your own dollar savings are accordingly only worth a fraction of their value. However when you pay taxes they are accepted at face value by a government that “should know better” , and it is this real interaction that gives credence to the value of the government debt used as a central bank asset – the government is handling “real” money.

        So there is one good reason to pay off government debt, you want to prove your savings are for real, and you need exorbitant tax measures to be able to do that.

        Tax more and tax now , you know it makes sense.

        • Bankers says:

          I figure I had better add a sarc tag at the end of that because sometimes the arguments can be more convincing to others than they are meant, and when you do mean something you don’t want it taken as in jest either. I am sure the tax office would be very understanding if you turned up with the above story though.

      • WES says:

        Since 2008 O used student debt as a way to get young people off unemployment rolls, to subsidized colleges/universities, and help banking. Corporate socialism!

        The smart students know not to pay back their loans because sooner or later student debt will be forgiven!

        The same goes for subprime housing loans! About 25% of subprime loans have not paid a cent in over 5 years! They have learned that they won’t be kicked out of their house for not paying their mortgage either! The government won’t let the banks kick people out of their homes anymore!

        So yeah these people are stupidly smart!

  17. Debt Wazoo says:

    Ah, my favorite Wolf Street chart, 2019 edition. Thank you! :)

    If a dollar of tax revenue gets spent on nukes or spying on the government’s own citizens, that’s $1 of GDP.

    If that same dollar gets spent paying down the national debt, that’s $0 of GDP.

    I’m starting to think the GDP metric actually has *negative* usefulness.

  18. kk says:

    Surely 95% of all production is consumed in any one year – we grow stuff, make things or serve people, then it’s gone. The government printing bits of green paper in exchange for all of these goods and services is a great idea, especially when buying from foreign countries. If common people stop wanting green paper then print some other shade – what are they going to do instead – barter?

    • Saltcreep says:

      kk, the scheme goes along nicely until the ones accumulating all the electronic digits representing green bits of paper on a broader basis actually get around to fancying converting them into a bit of consumption.

      I envisage a whole lot of accumulated digits in pension promises and unfunded liabilities at some point starting to chase a pretty static availability of other stuff.

      And as the pent up inflation gets underway I further envisage concern spreading and additional domestic and foreign holders of such digits rapidly entering the marketplace to exchange them for other stuff.

  19. Double D says:

    Nowhere is where GDP Growth would be. There is no “Real” growth. Only that that has been artificially created. Trillions of debt & 0% interest could barely spur 2% Inflation over the course of last 10 years. It doesn’t work. It only delays the inevitable.

    An unsustainable debt binge has been the conduit used for corporate buybacks & M&A activity over the course of the last 10 years. Corporations have astutely used cheap debt to fuel higher margins not earning growth & revenue. It’s all smoke n mirrors. The greatest Ponzi scheme of all time.

    We live in a Services Based economy, not one of new creation & innovation. That’s what spurs inflation, not debt. It wasn’t that long ago (Oct-Dec 2018) when the stock market was sinking over Global Growth Concerns. Nothing has magically transpired since then to suggest continued or stable GDP growth is in the future.

  20. TruckMan says:

    Government spending is not only inefficient, but the more Government there is, the worse it gets.
    ‘Diminishing Marginal Returns’ was part of my grade 11 Economics course.
    So, GDP growth trends to zero as spending increases and Government gets bigger.
    However, resilience decreases as Government gets bigger and less efficient, so a drama becomes more likely to develop into a disaster. Trying to pin down the timing and cause of the collapse gets harder, not easier, because with time an increasing number of bad events, of decreasing severity in themselves, could cause it. It’s the economic equivalent of a jenga tower.

  21. Shizz says:

    I got a hearty chuckle when I reached the “debt out the wazoo” annotation.

  22. Paulo says:

    Depressing stats, article, and comments. God, learning can be painful. If I didn’t have a Jack Russell that would pine away in my absence, and some chickens that need feeding, I’d take some savings and talk the wife into hitting the road to somewhere warm.

    Time for individuals to regroup and start making lists, and plans. I guess. Gratitude lists, and contingency plans. :-)

  23. HR01 says:


    What was 4th quarter 2018 GDP without inventory additions?

    In Q3, the number came out to something like 1% if memory serves.

    • Wolf Richter says:

      Well, good question …. We don’t know yet because the government shutdown delayed the data, and we still don’t have the complete business inventory data for December. We only have complete inventory data through November (the government belatedly released wholesale inventories for December last week or so).

      This lack of data also impacts today’s GDP report. We might see some bigger than usual adjustments to GDP on March 28 when the third estimate is released.

  24. Laughing Eagle says:

    GDP is really an inaccurate measure of our true economic growth. I do not remember where I got ther following data, but I think it was from one of Richard Duncan’s podcasts which I paid for 2 years ago. He said growth of GDP in the US has been built on debt or credit growth.
    In1970, GDP was $1 trillion but it required $1.6 of debt creation which resulted in a ratio of Debt to GDP of 1.6 to 1. Then in 2000, GDP was $10 trillion but it required $28.1 of debt creation or a ratio of 2.8 to 1. Then in 2008, GDP was $14.4 trillion, but it required $53.6 trillion of debt creation at a ratio of 3.7 to 1. Showing it is taking more debt creation to create more GDP growth, but at a ratio of more debt to GDP growth.
    Our economy is built on debt creation instead of wage increases, meaning this is an unstainable path. He also said government spending was 40% of GDP and finanacial sector was 20% of GDP, and healthcare costs at 20% of GDP, leaving only 20% for everything else.
    Problem is, sure the US Government can print their way, but each in everyone of us will pay higher prices for stuff as the dollar’s purchasing power falls.
    For example an average car was priced at $2800 in 1968, while today it is around $20,000. Healthcare costs are always increasing, yet the Fed wants to claim no inflation. Please.

    • NickL says:

      The “average” out the door transaction price with taxes & fees on a new car is well over $35,000 now. A 2020 Toyota Corolla is over $20,000 now BEFORE options, fees & taxes — sales tax in Massachusetts 6.25%, NYC 8.875%, NJ 7% plus annual state inspection.

      For $20,000 maybe (depending on how desperate car dealership is) you can get a 3 yr old Honda Accord with less than 30,000 on it (the upper limit is still 100,000 miles that a car is reliable especially if in the Boston area or NYC metro)..

      Car dealers now have crazy markups with the price referred to as dealer posted price not MSRP, so these days with SAAR still over 17.5 million dealers are selling at over 100% of MSRP sticker.

  25. raxadian says:

    Who would have thought, that red in the frag? Is debt, the stars are just there as a distraction.

    Horrible joke aside, stuff like this msjes me laugh when the USA complains about anyone ekse having too much debt.

  26. Old Engineer says:

    So, the GDP growth was approximately $1.0billion. And the increase in government debt was $1.3 billion. So, the “non-governmental” GDP was -.3 billion. Isn’t this reminiscent of the USSR? Where the government was responsible for all the GDP? Or North Korea?
    Clearly there is something I don’t understand.

    • Mean Chicken says:

      Well, you left our Venezuela. Otherwise, it seems you see the forest.

      I think we’ll have to wait and see what it all means in the end, on the surface it seems like an international competition for foolish policies or maybe arranged theft.

    • Jack says:

      Old Engineer

      No No, you understood everything, it comes down slowly “ like revelation “!

      All we need now is another copy of Gorbachev , but instead of policies of “perestroika” and “glasnost.” We’ll have
      the. “ green new deal”!! :)

      See it’s that simple, then we might ask
      The Bong smoking ( Musk) to help us
      Colonize MARS! so we won’t have to worry about Debt really :-]

  27. Mean Chicken says:

    My guess is the differential between the two is the fat cat cut.

  28. Kent says:

    I don’t really care about GDP, growth, gubmint debt and all that. The real question is how our economy is attempting to maximize our labor (skills, training, education) to produce the most stuff that we need and/or want.

    Money, debt, government and private spending are just means to that end.

    The problem with the government deficit is simply that we don’t tax where the money is going. We tax capital gains at a lower rate than income, and even then only upon sale. And the big money is flowing into financial markets instead of income. So, of course we are going to have heavy deficits. Tweak the tax code to tax capital gains at the same rate as income, and do it monthly based on stock market prices, not at the time of sale of the security, and the deficit goes away.

    These are just choices. Albeit influenced through Congressional bribery.

    • Old Engineer says:

      As I read Wolf’s analysis, the situation is that the only money contributing to growth in the GDP(economy?) in the US is government money. Without it the GDP would be shrinking. Very little of the “stuff” people need or want is produced in the U.S, with the exception of military equipment. A few years ago most of the internet backbone was owned by foreigners, don’t know the situation now. So even services are outsourced overseas. It appears to me we have, more or less, a Soviet style economy, dedicated primarily to the production of weapons and otherwise supported by government spending.

  29. Nik says:

    Thanks amigos for tuning in to ‘In-Debt’ Radio…where the hits just keep on coming…lololol

  30. NickL says:

    Its surprising that employment has been as strong as it has been over the past 8 years especially where GDP less than 3% every year except for 2017. It used to be that you needed 2% GDP just for employment to keep up with working age population and to keep the unemployment rate from rising. The unemployment rate is under 4% and job growth is best on record despite such low GDP growth. Everywhere from white collar corporate six figure jobs to blue collar tradesmen employers are complaining that they just cannot find people and they get no responses to adds posted on etc..

    • Weary Patience says:

      They can’t find people willing to work for the pay offered / hours demanded. ;-)

    • NickL says:

      I said
      {{ Everywhere from white collar corporate six figure jobs to blue collar tradesmen employers are complaining that they just cannot find people and they get no responses to adds posted on etc..}}

      NOT $12 an hour jobs at Target or McDonalds. I am talking about your average white collar corporate position in Accounting, Finance or IT in the NYC or Boston area, positions that start at over $120,000 a year — they cannot find people because there is everyone is working and many won’t leave unless the money is much greater than they are currently making..

      I am sure anyone in the NYC or Greater Boston area would fully agree with me

  31. NickL says:

    correction I meant 2018. Also there is a huge disconnect between consumer spending (on discretionary items) over this period and wage growth and GDP growth.
    Millenials are going to be taught a tough but valuable lesson. At some point you have to actually PAY that credit card debt built up mostly from eating out, $200 monthly gym memberships, spending thousands ‘online’ every month from Amazon and especially the whole smartphone & laptop computer replacement cycle of 1 yr or less. Sure with 3% wage growth its really sustainable for people to shell out $1500 each YEAR (plus wireless service) for the latest Iphone or samsung phone plus of course you ‘need’ the latest Macbook Pro if you are in a trendy city like NYC or Boston

    • DaveK. says:

      I’m outside of business and have a small “trades” service business. Good reliable labor is hard to find and I well. I haven’t been able to grow my business as much as I’d like because of this. My current client base pays high prices and gets great service…I turn down enough work to start another company but can’t no way keep up with the volume. I pre book my work for 4 days a week throughout the season and literally only take in a day a week of new stuff.

  32. Bill from Australia says:

    As stated by Wolf normal GDP does not include prostitution. If it did would it be inflationary, or deflationary, it would all depend on the timing ,just a thought.

  33. Iamafan says:

    Could you imagine if the Government did NOT spend a lot of money (debt); GDP will be much lower. /sarcasm/

  34. John Burleigh says:

    @ Bill from Australia
    I went through this entire string and there you were!
    The best one of the evening!
    John from Beach City Texas

  35. James says:

    How else can US GDP grow besides govt borrowing money, spending it?

    Seriously, how can fiat GDP measured in own currency grow without printing (or borrowing from private holders)?

    Other countries have to measure their GDP in US dollars so the game is different for them. But for the US, it appears that more dollars printed in circulation = more GDP

    • Saltcreep says:

      Ahem, James, apart from some special cases like e.g. Ecuador, other countries tend to measure their GDP in their own currencies. Of course that doesn’t stop anyone who wants to from converting their figures into USD terms if they so wish.

      And even with one dollar in circulation you can show a high GDP if it changes hands fast enough. As more and more currency units are piled into the economy in the form of new debt that doesn’t represent new productive capital coming online that is capable of servicing debt, the new dollars slow their rate of circulation and go and hide out in valuations instead of changing hands in transactions for real goods and services.

      That goes on until some day when a sufficient number of the currency units stored as asset valuations start to get converted into consumption of outputs, and it becomes pretty clear that real productive output has not kept pace with currency output.

    • Wisdom Seeker says:

      James – If people receiving income spend it, that accelerates the flow of money in the economy and GDP increases.

      If people receiving income stuff it under a mattress, that money becomes dead and contributes no GDP.

      If you want to see GDP grow, stop letting the ultra-wealthy collect it and let the workers keep more of the value they produce. The workers will spend the money on things they need. The ultra-wealthy don’t.

  36. NotMe says:

    Inflation is government debt. As long as debt is accepted. Government debt is as fungible as cash and can easily be traded for cash.

    When government debt is refused, either the government prints greenbacks or it balances the budget. The first is direct inflation. The second results in deflation if private credit contracts.

  37. Steve M says:

    By not counting money spent on “services such as prostitution and goods such as narcotics”
    I’d be a wealthy man…
    On paper.

  38. Lance Manly says:

    They sure make it confusing by computing it two different ways, annual levels vs. 4 quarters.

    “2018 GDP
    Real GDP increased 2.9 percent in 2018 (from the 2017 annual level to the 2018 annual level), compared with an increase of 2.2 percent in 2017 (table 1).”

    “During 2018 (measured from the fourth quarter of 2017 to the fourth quarter of 2018), real GDP increased 3.1 percent, compared with an increase of 2.5 percent during 2017.”

  39. Unamused says:

    You do know that this ends in catastrophe, don’t you? I’m sure I must have mentioned it a couple of times.

    Whatever happens, let’s make very sure that nothing gets done to address the problem and to absolutely avoid solving it at all costs. That way you can proceed smoothly to the I Told You So phase, followed by the more interesting Gnashing Of Teeth phase and then the rather tedious Bitter Recriminations phase.

    Sequencing is important but it can take time for events to play out once they’ve been set up. Rome wasn’t built in a day, after all, and in point of fact was never actually completed. But it may help a bit to take some consolation in the knowledge that for Some People the coming catastrophe really isn’t a problem at all, and that they are quite looking forward to it. Not that they will be any better off than their myriad victims, at long last, because, you see, they have gone too far. In the end, there will be only one miserable weeping voice, crying in the wilderness. And nobody will hear it.

    • 91B20 1stCav (AUS) says:

      on target. The game and its tools continue to remain more important to our species than a mission of maintaining a functioning planetary human environment. (having done my part to cheer us all up, may I wish us all a better day…).

      • Saltcreep says:

        1stCav, just to add to the cheer, that ship has, it seems, already sailed. It’s probably now mostly about just enjoying the view whilst we still can.

        We’ve already buggered ourselves, and yet we just continue to exponentially increase the damage we inflict upon our dying ecologies and the climate system that permits the stable agricultural output that sustains our vast numbers…

        • 91B20 1stCav (AUS) says:

          Salt-so sad, so true. Hope you might be fortunate enough to live in a genuine rural area as Paulo and I do. One can see the changes, yet take some satisfaction in undertaking minor mitigations of them in the years left to us…a better day to you, and all readers of Wolf’s great site.

  40. KiwiinCanada says:

    Assuming nominal inflation of 2% and actual inflation of 3%. After all systematic financial repression is helped tremendously by fudging the inflation numbers. This implies that nominal short term rates of 2.5 percent for short term treasuries represent an actual negative interest rate of 0.5 percent. Why would it not make sense to continue borrowing in such an environment. Inflation is relentlessly eroding the liability at a greater rate than borrowing costs.

    To maintain debt to GDP at a constant rate assuming an extra 100 bp of not recognized inflation and a resultant nominal increase of GDP of 6 percent in the US requires the federal govt debt to expand by 1.2 trillion annually. This is not to far from the actual debt expansion. This is necessary to support the component of real growth which currently is 3%. The sustainablity of this real growth might be questionable but if it declines it is potentially offset by higher inflation numbers as capacity limits are stretched. Next year real growth might be 2% and real inflation 4% justifying a further 6 percent expansion in nominal debt.

    The interesting question is the level at which nominal interest rates are set. If they still remain lower than the rate of real inflation than they are in fact negative real rates encouraging more borrowing.

  41. richarda says:

    Hi Wolf, you’re maybe missing the economic point. Look at the Kalecki profit equation and do the math.
    Private sector Profit (after tax) ~= Government Deficit.

  42. Pondering Life says:

    Lots of comments about this article.

    My question – “is this what you call spending itself rich?”

  43. Wilson says:

    I’ve known people who appear to be quite prosperous. Until it all collapses and you find they were massively in debt and living on their credit cards. We’ve seen this before in America, fake prosperity that is actually built on mountains of debt. It doesn’t last, of course.

  44. marmico says:

    Most of the additional borrowing of $1.3 trillion was added to GDP and therefore to GDP growth.

    That’s overreach.

    You should subtract:

    1. Interest on the $6 trillion debt held by foreigners. Back of the envelope $150 billion;

    2. Acquisition of financial assets (student loans, increase in the Treasury’s checking account at the Fed, etc.). Back of the envelope $400 billion; (See page 83, line 1 of the Fed’s Z.1 Accounts for data through September 2018)

    3. Increase in the intragovernmental debt which is a bookkeeping entry. Back of the envelope $200 billion.

    Now you need to show after the adjustments that the flow of funds went to consumption, investment and net trade.

    • Wolf Richter says:


      1. We’re talking about an INCREASE of $1.3 trillion in debt from year to year. If you want to explain this increase by pointing to interest paid to foreign holders, you need to point at the INCREASE in interest paid over the same period. Total interest payments to all holders increased by $64 billion. About 27% of the US debt is held by foreign holders. So the portion of that increase paid to foreign holders is roughly just $17 billion — not $150 billion.

      2. Total student loans outstanding increased by $100 billion in 2018.

      Over the calendar year 2018, the Treasury deposits at the Fed increased by $138 billion — BUT FELL by $10 billion over the two-year period (2017 and 2018), which GUTS your argument.

      This discussion of variations of the Treasury’s checkbook at the Fed is nonsense because this balance varies widely depending debt-ceiling issues, the timing of tax receipts, tax refunds, etc. And the Federal debt varies based on three factors: the increase in new issuance, the debt ceiling (flat line), and the timing difference between redemptions and issuance of debt. Your argument on this point is completely disingenuous.

      3. Totally wrong. Debt held internally is NOT a “book-keeping entry.” It is US Treasury debt held by US pension funds, the Social Security Trust Fund, etc. This is a liability that is owed beneficiaries of those funds, using beneficiaries’ contributions. The difference between Treasury securities that are publicly traded and Treasury securities that are “held internally” is that that those held internally are not publicly traded and are therefore not subject to market forces. And that’s it.

  45. Unamused says:

    So $1.3 tn was borrowed, and $1 tn was spent.

    So where’d the other $300 billion go? Seems a bit much to be rounding error or loose cash.

    • Lance Manly says:

      Sandbagging for the debt limit. If I remember correctly the treasury is desperately trying to get rid of the cash on hand as it exceeds the amount allowed by law

  46. C. whereas the average general government deficit ratio in the euro area increased to about 6.3% and the public debt-to-GDP ratio rose from 69.4% of GDP in 2008 to 78.7% in 2009 in the euro area,

  47. Jonathan says:

    I read somewhere that around 44% Americans don’t even have $500 in savings to cover an emergency.

    Great economy my butt.

Comments are closed.