Benefit of increased debt to US GDP

I was curious to see where we are of late on the subject of how additional total US debt will affect the GDP, since the effect had dropped linearly from like $1 of benefit for $1 of new debt in the 60s to about 15 cents of benefit in 2008. Plus I wanted to chart this vs. other things, like M1 multiplier and GDP. So I crunched some numbers from the Fed Flow of Funds report for 2Q09, and did some graphs in Excel for the last 3 years. They are a bit crude, but I am not up to speed on Excel tricks. Anyway, you can see what I found, as far as the most recent data $1 of new US total debt collapses the GDP by about 14 cents. Ugh. the ratios were computed using 4 quarter moving averages on total US debt and GDP. I put a nice red line across the graphs hilighting when things went to hell. At the current rate of new debt accumulation (north of $2T a year), the contribution to the GDP of this additional debt is -2.3% to the GDP. BTW, M1 multiplier is like .8 now. [attachment=13584:compare_gdp_etc.JPG]

So, what you are saying with this chart is that we have reached the point of diminishing returns, where more debt per se does not increase GDP. This is deflationary wouldn't you say? GS.

You would think it would be. Maybe my groceries dropped a a bit, but what's up with the dollar drop here?

You would think it would be. Maybe my groceries dropped a a bit, but what's up with the dollar drop here?

I think it is just taking its time. There is a lot at stake here and a big battle is underway in the markets right now.

If Hopebama and his stupid economic team paid attention to the debt issues that confront the US we'd be on a different parth to recovery.

One of my thoughts is that an exogenous event will be the catalyst that will trigger a change in the markets that Hopebama and team will use to say
"see, we were on the right track and this S%%^T happened beyond our control so tough luck" and down we go. Then he saves face in preparation for the next elections with more fake promises of recovery part II, etc. This is what governments do everywhere.....

GS.