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The GDP/Debt Ratio Went Negative in 2008/9

Gary North
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March 29, 2010

This chart is getting a lot of publicity. The creators labeled it "the most important chart of the century." That is good marketing.

The chart is important. It reveals graphically what Dr. Kurt Richebächer warned about all through this century until his death in August 2007. As total debt rises, it produces ever less output. This is another way of saying that the marginal rate of return on debt declines over time.

According to this chart, the GDP/Debt ratio went negative in 2008/9. The chart is based on the Treasury's Z1 flow of funds report for 2009 issued by the Federal Reserve on March 11, 2010.

As the debt continues to increase, the ratio will decline further.

We are clearly at the point of no return politically. The scheduled increases in the Federal debt of a trillion dollars a year for the remainder of the decade is understated. Congress will not repeal the legislated spending. It never does. It may spend even more, meaning more debt.

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