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One of the few benefits of the Pandemic was that it forced some people to save. Those who could work remotely, but could not go out to eat, entertain, go to a movie or theatre or travel had fewer options to spend. Other Americans got various stimulus payments and, like their working citizens, also had limited ways to spend money. Consequently, the monthly change in Consumer Credit fell off a cliff during the height of Covid-19 (chart below). The re-opening of the U.S., however, has seen the largest monthly increase in credit in the past 30 years.


In order to keep the engine of the U.S. economy running, FED borrowing spiked to pay for Pandemic payments and stimulus. Chart 2 shows that the FED balance sheet has had 3 spikes in the past 20 years. The first 2 were associated with borrowing to deal with the Housing Crisis and Brexit. The most recent spike, put in place to deal with Covid-19, is actually the largest in history. The Pandemic saw the FED’s balance sheet go from about $4.5 trillion to over $8 trillion.


Before the Financial Recession, Total U.S. Debt (public debt) remained much lower than GDP. By 2011, GDP and Total U.S. Debt were about the same. Until March of 2020, GDP and Total U.S. Debt were running neck-and-neck. All of that has now changed. At $28 trillion, the country’s debt now far exceeds its GDP of $22 billion (charts 3 & 4).

Debt only makes sense if it will eventually create growth. Increases in debt to service debt is a downward spiral. At some point, U.S. growth must be strong enough to pay off what it owes.

So far, these incredible levels of debt have not bothered the stock market at all, but at some point they will.

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