American Bullion -- It Will Be Far Worse Than The Great Depression

Thursday, March 11, 2010 at 06:01am

It Will Be Far Worse Than The Great Depression 

If the economy was a person, then the producing sector (agriculture, manufacturing, mining, etc) would be its “income”. If the service sector is much smaller than the producing sector (like China today or the US one hundred years ago), then a country is living below its means (net saver). If the service sector is much larger than the producing sector (like China today or the US one hundred years ago), then a country is living above its means (depleting savings and going into debt). 

Below is a graphic showing the different sectors of the US economy over the last two hundred years.

Here is what needs to happen (and what will happen) in the next two years to bring the US economy back into balance.

GDP is a flawed measure of a nation's wealth

If the economy was a person, then its GDP represents its “spending”. As anyone knows, by dipping into savings and borrowing money, a person can temporarily live beyond their means. This is what the US has been doing big time for the last few decades.

It is ridiculous that economists consider the US to be the “largest” economy in the world based on this flawed economic measure.

It will be worse much worse than the great depression

If you are worried about someone defaulting on their debt, do you:

A) Compared that person’s debt to his “spending”.

B) Compared that person's debt to his "income".

(the answer should be dead obvious)

Now I am sure that most readers of this blog have seen some version of the chart below, comparing US debt to gdp (“spending”). This chart incorrectly suggest that the US is due for a downturn as bad as the great depression.

The reality is that total US debt should be compared to America’s producing sector (“income”). As a percentage of gdp, the producing sector in 1930 was four times the size of the producing sector today. This tells us that the US economic collapse will be far worse than the great depression. 

Eric de Carbonnel

Market Skeptics