Friday, July 15, 2016

Excessive Debt Levels
Are Slowing The Economy
In his latest Outside The Box, John Mauldin presents the quarterly update from Dr. Lacy Hunt .. Mauldin: "It has come to be a near truism that high levels of government debt and deficit spending suppress economic growth, but how exactly does that happen?  .. On the U.S. deficit spending front, the authors state that the best evidence suggests that the U.S. government expenditure multiplier is -0.01, which means that each additional dollar of deficit spending reduces private GDP by $1.01, resulting in a one-cent decline in real GDP. Additionally, the authors say, the multiplier is likely to become drastically more negative over time since the mandatory components of government spending (Social Security, Medicare, veteran’s benefits and the Affordable Care Act, etc.) will represent an ever-increasing share of the federal budget .. It is very significant, too, say Hoisington and Hunt, that while debt begins reducing economic growth at relatively low levels of government debt-to-GDP, as the debt level rises the debilitating impact on growth speeds up. That is, the impact increases nonlinearly. The bottom line, say our authors, is that with global debt levels moving ever higher, we can expect that worldwide business conditions will continue to be poor and that the slowdown ahead will cut the already weak trajectory of nominal growth. We are at risk, they warn, of falling into a global policy trap."
LINK HERE to the PDF
Click "Mauldin July 13" to download Mauldin's letter (may need to provide your email address), or hit "View Fullscreen" at the bottom next to the Scribd logo to enlarge viewing .. John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

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