One of the interesting data points that I came across post-election is that over the past 100 or so years, following any two-term President, there has always been an economic contraction within the first twelve months afterwards. In that vein, I saw a really compelling interview with Lacy Hunt on Real Vision that provided the following nuggets:
As it relates to debt:
-From 1952-1999, it took $1.70 of debt to produce $1 of GDP
-From 2000-2015, it took $3.30 of debt to produce $1 of GDP
-In 2016, it took $5.00 of debt to produce a $1 of GDP
That, my friends, is what non-productive investment and debt looks like. But, there's more...
-The United States is demographically challenged. The population is the oldest that it has been at any time in the history of the republic.
-As a post-script on those debt and GDP correlations, the last 10 years has only seen an average of 1% per capita income growth, far below historical trends.
-The post-GFC recovery has been the weakest expansion since WW2, and one of the weakest since 1790.
-The industrial capacity use rate has been trending down, which speaks to significant excess capacity. That represents one of the strongest rebuttals to the idea that the proposed corporate cash repatriation plan will have meaningful impacts on growth.
-Of the $69Tn in outstanding debt in this country, some $20Tn is due in the next two years. As rates are now 100bps higher than a year ago, that represents some $200Bn in additional debt service payments if all of those liabilities are simply re-financed. In an economy where GDP only grew by $530Bn last year, more and more capital therefore has to go towards financial/non-productive overhead.
Anyway, all of it is just a roundabout way of saying that things look bleak for the economy prospectively. And why, despite my disgust with Putin Derangement Syndrome and liberal hypocrisy, I am not a big believer in the Trump rally and related economic confidence. Even if he does the right things, the bill is still coming due.
