The Impact of Debt on Economic Growth and Bank Credit in the GDP Cycle

📈 The financial cycle, the GDP cycle, and the price labor cycle are interconnected cycles that affect the economy.

📉 Monetary policy plays a crucial role in determining the peaks and troughs of the financial cycle.

💼 Loose monetary policy can lead to inflation and excessive risk-taking, negatively impacting the majority of people.

📉 Arthur Burns, chairman of the Federal Reserve, made a major mistake by serving as part of wage and price controls, causing a conflict of interest.

💥 The coordination of monetary and fiscal policies during crises, such as the pandemic, can lead to negative consequences and a devastating impact on the standard of living.

💰 Extreme over-indebtedness has led to a decline in economic growth, as shown by the falling trend line of per capita GDP.

📚 Economic thinkers like David Hume, Newton, and Irving Fisher have highlighted the impact of financial cycles and over-indebtedness on economic stability.

💡 Central bank operations reduce the rate of growth in bank liabilities, leading to a decline in deposits and a decline in the bank asset side.

📚 Extreme looseness of monetary policy leads to the overaccumulation of debt and financial instability.

🔍 When interest rates are loose, financial intermediaries search for yield and increase financial risk.

📈 Bank credit is a late cycle variable and tends to turn negative after the GDP has already declined.

💰 The current growth rate of bank credit in inflation-adjusted terms is negative, indicating a contraction in credit flow.

📉 The velocity of money, although showing a slight uptick, is still very depressed and expected to turn down in the future.

💼 The marginal revenue product of debt is decreasing due to the large amount of debt taken on at low interest rates, which may impact velocity.

📉 The loan to deposit ratio is increasing, but loan demand is declining, which will affect the effectiveness of monetary policy.

💼 Productivity in the non-farm business sector has been declining, leading to overstaffing and higher unit labor costs for firms.

💰 Real weekly average hourly earnings have declined, leading to a loss in the standard of living for millions of people, particularly those with modest incomes.

🏦 Delinquency rates are increasing, indicating financial pressure on individuals and causing banks to tighten lending standards.

💲 The gross federal debt is significantly high and continues to increase, raising concerns about the country's financial stability.

📚 The study by Carmen Vincent Reinhardt and Ken Rogoff found that when the debt metric is not met, the economic growth rate is reduced by more than a third.

🌍 The comparison with Europe and Japan confirms Reinhardt and Rogoff's findings, showing a decline in the standard of living relative to the US over time.

🚢 The volume of world trade has turned negative, indicating a potential slowdown globally, although consumer retail sales remain strong.

📉 The internal fundamentals of the consumer and global economy are worsening, indicating a potential recession.

🌍 Demographics around the world, including in the United States, Europe, Japan, and China, are deteriorating, impacting economic activity.

💰 High levels of government debt and borrowing pose long-term consequences, but politicians seem to lack understanding of the implications.