Debt to GDP

The number one thing to consider when deciding for yourself how the global economy will play out, and how you should protect yourself is a simple ratio: Debt to GDP.

There are many who will scream about "debt reduction," and others who will scream about "Growing the economy." Unfortunately there seem to be very few with enough high school math to see the contingent link between these two ideas.

In modern capitalism Debt and GDP are inextricably linked. In fact, they exist as a ratio. You can not create GDP without Debt. You can not reduce debt without reducing GDP - for some period of time.

The easiest way to think about it is this: How many dollars of debt does it take to create a dollar of GDP? In the simplest of terms: If I lend you a dollar and you invest it and make ten: Well, then a dollar of debt created 10 dollars of GDP (or more.) If I lend you a dollar and you turn it into 1.10 dollars. Well, then it would take 10 dollars of debt to create a dollar of GDP.

The problem right now in the Global Economy is that there is so much debt in the system that it takes six, eight, ten dollars of debt to create a dollar of GDP. That's where we are. In fact, it's no longer clear that any amount of additional debt will add even a penny to world GDP.

Austerity will bring down debt, but it will also bring down GDP so the Debt to GDP RATIO WILL NOT MOVE.

And if growing the economy takes debt, but debt no longer grows the economy - what then do you do, grasshopper?

You figure that one out.

I'll buy gold.