We asked Miron about the predictive value of these data. Could you tell that Greece was on the verge by examining its fiscal imbalance? And might notJapan be the tripwire to any future developed-country debt crisis, sinceJapan–surely–has the most adverse debt, demographic and entitlement-spending profile? Miron replied that comparative statistics on fiscal imbalance among the various OEGD countries don’t exist. And even if they did, it’s not clear that they would tell when a certain country would lose the confidence of its possibly inattentive creditors. The important thing to bear in mind, he winds up, is that the imbalances–not just in America orJapan or Greece but throughout the developed world–are “very big and very bad.”
Of course, government debt is only one flavor of nonfinancial encumbrance. The debt of households, businesses and state and local governments complete the medley of America’s nonfinancial liabil’ities. The total grew in 2015 by 51$ 1 .9 tril’h’on, which the nominal GDP grew by $549 billion. In other words, we Americans borrowed $3.46 to generate a dollar of GDP growth.
We have not always had to work the national balance sheet so hard. The marginal efficiency of debt has fallen as the growth in borrowing has accelerated. Thus, at year end, the ratio of nonfinancial debt to GDP reached a record-high 248.6%, up from 245.4% in 2014 and from the previous record of 245.5% set in 2009. In the long sweep of things, these are highly elevated numbers.
In the not-quite half century between 1952 and 2000, $1.70 of nonfinancial borrowing sufficed to generate a dollar of GDP growth. Since 2000, $3.30 of such borrowing was the horsepower behind the same amount of growth. Which suggests, conclude Van Hoisington and Lacy Hunt in their first-quarter report to the clients of Hoisington Investment Management (30., “that the type and elficiency of the new debt is increasingly nonproductive.”
What constitutes a “nonproductive” debt?