According to statistics from the U.S Global Investors, there was $4.2 trillion growth estimated in the GDP from 2000 to 2007. During this period the total debt of the credit market swelled by $21.3 trillion. It means that with every $1 rise in GDP, the debt amount bounced by $5. As a result, $1 debt leads to only 20 cents growth in the GDP.
In 1966, the GDP increased by 90 cents on every $1 of debt. But due to rise in the amount of debt, the current $1 increase in debt does not help to boost the growth of GDP.
The debt to GDP ratio in the US was near 130% in 1980, but presently the ratio exceeds 360%. Therefore, it proves that US economy is dependent on debt.
Economists have evaluated that with an upward swing in the growth rate of debt it will result in halting economic growth.
Has US economy reached Zero hour?
Zero Hour is considered when $1 of new debt has no cumulative impact on US GDP. This is expected to be reached in 2015. But the Zero Hour could come before that time due to a large amount of money has been printed and incurring of new debt.
Repercussion of Zero Hour on US Economy:
The extra debts will not positively affect the GDP. Therefore, the incremental debt will lead to inflation. When US economy reaches Zero Hour, the bonus debt will result in a price hike.
Current inflation is far worse than that of the 1970’s:
The problem of inflation will further deteriorate in the future. The US has incurred overwhelming amount of debt, and they can combat against this situation by hyper inflate. If large amounts of money are printed, then a large amount of debt will appear insignificant, but it will lead to devaluation of dollar.
Therefore, one of the worst inflations of the decade is approaching, and the U.S should be prepared for it. The savings rate in the US has dropped drastically. It is quite clear that debt is seriously affecting consumer savings, and this is a major headache for America. The economy is turning from production based to consumption based leading to a greater problem.