Saturday, July 25, 2015

More Debt Won't Work; Charts to Prove It

For those people and economists that still advocate more government spending (and debt creation) to combat a sagging economy should look at the following charts.  The marginal utility of debt is dropping to nothing.  Someone better tell Paul Krugman!

Diminishing Margin Returns On Debt in the USA
Here's the same chart but different author

Looking at the above charts, you can see that Keynesian spending "firepower" is continuing to drop. It might even become detrimental at some point.  It doesn't work anymore. Ordinary citizens without PhDs can feel that something has changed. Rogoff and Reinhart said that highly indebted countries grow slower, which may be related to what we're seeing.

China, since 2007, has spent itself right into the same situation. There's little firepower left for them either.

It's a dangerous situation for the world: more debt doesn't help! And it may be hurting now. So, we've learned that QE doesn't work.  Zero Interest rates don't work either.  The world economy is still (slowly) sinking.  We're reaching (or reached) the end of the road. There's no way out now.

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