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A Citizen’s Report

CAMS Weekly View from the Corner – Week ending 10/1/21

October 4, 2021

Government debt, money printing and Gross Domestic Product are often used interchangeably when you-name-it policy official wants to underline the necessity of continuing “x” program or policy in order to keep the nation’s government and/or economy operating smoothly.

Government debt is issued in our collective names (as tax payers) by being backed with the “full faith and credit of the government” which is to say backed by its taxing powers and its ability to print money. Through this we see the tie-in of debt and the printing press and the downstream tie-in of GDP per the narrative that without continued debt and money printing economic growth would be in peril.

With this then, in an attempt to reduce a multi-decade narrative down to simplicity, we can surmise as citizens that the ever growing government indebtedness and money printing is essential in keeping our economy in growth mode ala positive GDP reports and through this is good for all of us.

Is it fair to ask then, how have these three unfolded and more importantly, how has it worked out for “we the people?”  Being the narrative is decades’ long, in conjunction with this being such a large macro topic, let’s take a multi decade view so history can tell her story of the three interacting together over time.

We can observe the comparative growth of multiple measures by indexing them to a start date.  With this they all start at a beginning point by being indexed to 100 which we can simply think of as a starting line for a race if you will.  Our starting point above is January 1980 – that is 40 plus years of interaction.

The three lines are the aforementioned debt, money printing (via the Monetary Base measure) and GDP. The light green line depicts government debt, the red line money printing and the lower blue line economic growth via the GDP measure.

Let’s first state the obvious that by looking at the chart in full we see a structural financial backdrop that is a disaster. Succinctly, debt and money printing growth are miles in front of the underlying economic growth in the previous 40 years. In addition, history tells us above that with each passing decade the story gets noticeably worse for growth in the economy relative to the growth in debt and money printing.

In total, from the beginning of the chart to current day, GDP has increased 8 times over while debt has increased 33 times over and money printing (again via the Monetary Base as our measure) has increased 39 times. This means that debt has increased at a rate 4 times greater than underlying economic growth while money printing has increased 5 times greater than underlying economic growth.

Recalling the 1980’s and early 1990’s

Are you old enough to experientially remember the 80’s? If so, recall the consistent national discussion of the ever escalating government debt levels to the point of it being a topic shared in State of the Union addresses. Ditto that for a decent chunk of the 90’s as well.

Interestingly, when looking at the chart above the 80’s look benign relative to how the story has unfolded. We invite you to click the link under the chart. It is set up that you can place your cursor over the lines and see the readings of the three unfold as you move left-to-right.

Through this you will see how government debt truly was leading the charge in growth to the point that by the mid-80’s debt had more than doubled (grown to over 200 on its index) while economic growth and money printing were notably behind.

As you follow through time the interactive chart reflects how debt and money printing have done moon shots if you will while economic growth has been a notable under-performer in the proverbial race as depicted in the chart.

Our Selected Economic Growth Measure

This is a data detail we feel important to share. As bad as the GDP (blue line) indicator is in the chart relative to debt and money printing it is much worse when using the traditionally referenced GDP measure. That is, when media reports results of GDP for “x” quarter they always reference “Real GDP” which means it is economic growth with inflation taken out of it which is as it should be.

There is also “nominal GDP” which means the GDP number before inflation is factored out of it. Consequently, nominal GDP is always a higher number. In the above chart we used nominal GDP. When using the traditionally reported (real – inflation adjusted) GDP the above chart storyline is much worse. While the above chart reflects our selected GDP grew by 8 times when using real GDP it has only grown by 3 times.

This speaks to inflation and its impact on actual economic growth which further underlines other societal issues that money printing has brought with it – namely price inflation. We also made a follow-on chart which reflects the real GDP measure via the purple line at the bottom of the chart. It can be viewed here if you care to see a visual:

More Coming

There is another multi-trillion dollar Bill working its way through the Legislative and Executive branches which is actively being debated. Rest assured fellow citizen, when/if that is passed it will not be paying for itself which is to say expect much more debt and follow-on money printing to come.

If you happen to be thinking that raising taxes generally or specifically on a particular segment of society will take care of this issue sadly it will not. The level of tax increases that would be necessary to create even a noticeable change in the above would end up materially impacting the very economic activity that supports said tax increases.

Offered differently, it would have to be a very large increase in taxes in combination with a notable decrease in spending at the government level. This while we currently entertain another multi-trillion dollar package assures us that decreased spending at the government level is not even a thought let alone a plan of attack to improve the above structural disaster.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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