WARNING: Dangerous Indicator Just Hit A New All-Time High Eclipsing Years 2007 & 2000, Prior To Crashes
This dangerous indicator just hit a new all-time high, eclipsing the years 2007 and 2000, prior to crashes.
Here is what Peter Boockvar wrote today as the world awaits the next round of monetary madness: Reiterating again my bullishness on the economic agenda of our new President (ex any nationalistic trade changes that include tariffs) I will repeat that it would be naïve to analyze this in isolation when trying to quantify the full implications…
What if the 35 yr bond bull market is actually over (I’ve been stating my case for a few months now), what will that mean for the interest rate sensitive sides of the US economy which would act as an offset to the impact of the upcoming tax and regulatory policies. Let’s start with current US debt levels (I’m going to simplistically just focus on the US but we know a rise in interest rates will be a global phenomenon as it’s been so far with global debt at $152 Trillion).
U.S. Debt/GDP Hits New All-Time High, Eclipsing 2007 & 2000 Readings
As of Q2, total US non financial debt (households, business and government at all levels) totaled $46 Trillion. That is 250% of nominal GDP. To compare, that ratio was 226% in 2007, 182% in 2000 and just 161% in 1983 when the US economy was then exiting recession. Thus, for every 100 bps increase in interest rates, we are talking about a $460b rise in interest expense (2.5% of GDP and use these figures when hearing about the size of any new fiscal policy). For the private sector, $27.5 Trillion of the $46 Trillion would see $275b of added interest expense. Directly speaking, I’m stating the obvious by saying activity in housing and autos will slow down in response to higher rates. By how much? I’m not going to guess because hopefully higher incomes will be an offset to some degree.