Monthly Archive for March, 2009

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What Portion of Past Economic Growth Was Debt-Fueled?

Posted on March 6, 2009, 1:05 am. Closed

For the past several weeks I’ve been wondering to myself, “What portion of the economic growth we have experience in the past decade or so is solely attributable to the expansion of debt?” I have not been able to come up with an answer. However, I did create a chart that may or may not provide a vague, general answer.

For this chart I simply plotted the S&P monthly closes and the total consumer credit outstanding data (provided by the St. Louis Fed). My basic hypothesis is that the markets will find a bottom at their 1994-95 levels as this was the last point in time the markets started to increase after a period of zero or negative percent growth in consumer credit.

I am not an economist and I have no idea whether I’m right or wrong or just crazy. But I can look at a chart!

If anyone has an answer to the above question, please leave a comment.

Long Term and YTD Asset Class Returns

Posted on March 4, 2009, 9:57 am. Closed

The Big Picture brings attention to the fact that the S&P500 closed yesterday below the market level at the time which Alan Greenspan gave his Irrational Exuberance speech in December 1996. It’s hard to believe that after nearly 13 years we’ve wiped out so much progress. But who am I kidding? What we had for the past 13 years now seems like real progress at all: it appears to have been illusory, fake, and debt-driven.

Here are two interesting charts of the returns of various asset classes to give us a picture of where we are and what happened in our journey to get here. Here’s a YTD look:

Here’s a look at returns since the 2000 equity peak: