The USA’s debt burden dropped this month, and I’m not happy about it. Reason: It’s looking suspiciously as if rising inflation is the main reason it dropped. First the chart, then I’ll explain what’s ominous about it.
Click to enlarge.
[Origin of Debt Thermometer]
[Full history of the debt burden]
The debt burden numbers above look like good news, don’t they? The USA’s dropped a little, so did Canada’s, and the gap between us and several of the Euro area countries is widening. The reason ours dropped is because nominal GDP is now growing at a 6.2% annual clip, and that’s faster than our debt is growing.
What’s ominous is the Inflation meter (below all those happy-looking debt burden results). Inflation of 3.2% is getting outside of the comfort zone, and it accounts for more than half of the nominal GDP growth. Not the right way to reduce the debt burden.
I have some research to do on this, and it will be the weekend before I can get to it (reason: swamped at day job). Is the trade deficit starting to drive the bellwether (20-yr) bond’s interest rate up? Until now, that bond—presumably a favorite of the mega-savers in China and Japan—has been bucking the inflation-pressure trend that the Fed has been seeing. Look for more on this subject by Sunday. In the meantime, here’s one of the charts I’ll be analyzing.
Click to enlarge.
UPDATE: See a blowup of this chart using weekly data in my subsequent article on this subject.
