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Buzz and Banter


Reading through the Federal Reserve's Z1 report issued yesterday, we found some startling statistics (well, startling to some). Non-financial debt grew at an annualized rate of 24% of total Q2 GDP and 12% from Q1 to Q2. This growth was split 24.3% federal government, 11.5% household, 6.4% business, and 12% state and local government. This is the fastest growth in 17 years.

Since this is an annualized number, you can basically take this to mean that all of GDP growth can be attributed to new debt in lieu of savings and existing capital. Total non-financial debt now stands at $21.6 trillion, over 200% of GDP (this number does not even include the huge amounts of off-balance sheet debt).

UBS stated in a summary report that "this pace of debt growth simply cannot be maintained, and therefore, we question the sustainability of the U.S. economy." I hope this makes the risk from rising interest rates clear.
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