Peter Schiff has been saying that despite the recent stock market rally and all of the optimism about an end to the trade war, a recession is a done deal. There is plenty of economic data to back up despite the recent economic growth. In his most recent podcast, Peter Schiff said that while the GDP number might look pretty good, the growth is unsustainable because it’s all built on debt.
Last week, we got the first look at Q4 GDP. It came in slightly stronger-than-expected with a rise of 2.6%, on an annual basis. That compares to trade expectations of a rise of around 2.2%. If that holds, total 2018 GDP may well come in at Trump’s target of 3%. This would be the biggest GDP number since 2005.
But Peter put this into a little different perspective. Consider this: in 2005, the national debt increased by $554 billion. That borrowing “purchased” 3.5% economic growth. In fiscal 2018, the national debt increased by $1.27 trillion. That’s more than double the debt increase of 2005.
So, we had to add a lot more debt in 2018 to buy not as much growth as a much smaller amount of debt in 2005. So, the takeaway from that is this is unsustainable because the growth came at a heavy cost. We had to increase the amount of debt that we had by a lot more than the percentage that the economy grew.”
And of course, it’s not just government debt. Household debt is also at record levels.
As Peter put it, “We’re not richer because of this economic growth.”
If your debt is growing faster than your economy, then you’re not getting richer. You’re getting poorer. You would have been better off without the debt and without the growth … We’re borrowing ourselves into poverty. We’re not borrowing
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